IRS Announces 2017 Standard Mileage Rates for Business, Medical and Moving

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 53.5 cents per mile for business miles driven, down from 54 cents for 2016
• 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
• 14 cents per mile driven in service of charitable organizations​

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

​Taxpayers have the option of using the standard mileage rate or the business % of their actual expenses.  It is often advantageous to take advantage of accelarated deprecation deductions (MACRS & Section 179) in the firt year or two a new vehicle is placed in service.  Later as the depreciation deduction is reduced in years 3, 4, & 5, there is less to deduct and less tax savigns.  After a vehicle is fully depreciated the standard mileage is often a better option tax wise, but remember that when one uses actual expenses in the year a vehicle is placed in service, one does not have the option to switch back to standard mileage in a later year.  In order to switch back and forth between the actual expenses and standard mileage a taxpayer needs to take the standard mileage in the first year they use the vehicle for business purposes. 

Deciding whether to take standard mileage or actual expenses in the first year depends on a number of factors:

1. Was the vehicle new or used?  (Used vehicles do not qualify for certain accelerated depreciation methods.)
2. The cost basis of the vehicle.  (Higher cost vehicle offers more deprecation & loan interest deductions.)
3. How long you own the vehicle.  (Actual expenses is usually more advantageous for vehicles owned less than 5 years.)
4. Whether you want to keep track of vehicle expenses (you are required to keep track of mileage either way.)
   

If buying a new vehicle, keep in mind the option to take a Section 179 expense deduction under actual expenses in the year the vehicle is placed in service.  It doens't mean you can write the whole cost off as some auto dealers try to make you think.  The personal use portion is not deductible and there are limitations set by the IRS on the total deduction in any given year.  While a Section 179 provides a larger deduction in the first year, it often reduces the deduction in future years when it may be needed more.  If buying a new vehicle, be sure to consult with us before counting on a Section 179 expense deduction.