Mileage Rates and Auto Depreciation Limits Increase


The IRS has released the 2018 optional standard mileage rates to be used to calculate the deductible costs of operating an automobile for business, medical, moving, and charitable purposes. Beginning on January 1, 2018, the standard mileage rates for the use of a car, van, pickup of panel truck will be:

  • 54.5¢ per mile for business miles driven (up from 53.5¢ in 2017);
  • 18¢ per mile for medical and moving expenses (up from 17¢ in 2017); and
  • 14¢ per mile for miles driven for charitable purposes (permanently set by statute at 14¢).

A taxpayer may not use the business standard mileage rate after using a depreciation method under Internal Revenue Code (IRC) Section 168 or after claiming the IRC Section 179 deduction for that vehicle. A taxpayer may not use the business rate for more than four vehicles at a time. As a result, business owners have a choice for their vehicles: take the standard mileage rate, or “itemize” each part of the expense (gas, tolls, insurance, depreciation, etc.).

New depreciation limits under the Tax Cuts and Jobs Act
The new “Tax Cuts and Jobs Act” recently passed by Congress and signed into law by President Trump raises the cap placed on depreciation write-offs of business-use vehicles. The new caps will be:

  • $10,000 for the first year a vehicle is placed in service (up from a current level of $3,160);
  • $16,000 for the second year (up from $5,100); $9,600 for the third year (up from $3,050); and
  • $5,760 for each subsequent year (up from $1,875) until costs are fully recovered.

For passenger autos eligible for bonus first-year depreciation, that maximum first-year bonus depreciation allowance remains at $8,000 (raising the first-year write-off to $18,000). The new, higher limits only apply to vehicles placed in service after December 31, 2017.

For vehicles placed in service in 2018, the preceding caps will apply to all types of vehicles. However, the IRS figures inflation adjustments differently for (1) trucks (including SUVs treated as trucks) and vans and (2) regular passenger cars. Thus, beginning in 2019, when these figures are first adjusted for inflation, separate inflation adjusted caps will be provided for (1) trucks (including SUVs) and vans and for (2) regular passenger cars.

Also, the $25,000 IRC Section 179 expensing limit on certain heavy SUVs is inflation-adjusted after 2018. The $25,000 limit applies to a sport utility vehicle, a truck with an interior cargo bed length less than six feet, or a van that seats fewer than 10 persons behind the driver’s seat if the vehicle is exempt from the IRC Section 280F annual depreciation caps, because it has a gross vehicle weight rating in excess of 6,000 pounds or is otherwise exempt.

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

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