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Rev Proc 2008-72, 2008-50 IRB, IR 2008-131, 11/24/2008
IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 550 per mile for business travel after 2008. That's 3.50 down from the 58.50 allowance for business mileage in the last six months of 2008. Further, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 240 per mile, down 30 from the 270 per mile allowance for the last half of 2008.
Observation: A special mid-year adjustment raised the rates for the second half of 2008 in response to a spike in gasoline prices. In IR2008-131, 11/24/2008, IRS notes that the 2009 mileage rates reflect generally higher transportation costs compared to a year ago, i.e., in the first half of 2008 (50.50 per mile for business travel and 190 per mile for medical or move related travel), but that they also factor in the recent reversal of rising gasoline prices. IRS also notes that while gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter into the calculation.
Simplified deduction method. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2008-72, Sec. 5.04)
The standard mileage rate may not be used for a purchased auto if
... it was previously depreciated using a method other than straight-line for its estimated useful life;
... a Code Sec. 179 expensing deduction was claimed for the auto;
... the taxpayer depreciated it using MACRS under Code Sec. 168; or
... the vehicle is used for hire, such as a taxicab. (Rev Proc 2008-72, Sec. 5.06)
Also, the standard mileage rate can't be used to compute the deductible expenses of five or more autos owned or leased by a taxpayer and used simultaneously (such as in fleet operations). (Rev Proc 2008-72, Sec. 5.06(1))
Rural mail carriers who receive qualified reimbursements also can't use the standard mileage rate. (Rev Proc 2008-72, Sec. 5.06(4))
A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight line depreciation over the auto's remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 200872, Sec. 5.06(3))
A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period (including renewals). If the lease period began before '98, this rule applies only for the post-'97 portion of the lease period (including renewals). (Rev Proc 2008-72, Sec. 5.06(2))
Other business mileage rate rules. For 2009 and 2008, the depreciation component of the mileage rate is 210 per mile (190 per mile for 2007, 170 per mile for 2006 and 2005, 160 per mile for 2004 and 2003). The depreciation component reduces the basis of the auto for gain or loss purposes. (Rev Proc 2008-72, Sec. 5.05)
Advantages of using standard mileage rate. For those taxpayers eligible to use it, the standard mileage rate offers the following advantages:
... Mileage rate users need not keep a record of actual expenses, or retain receipts where required. A record of the time, place, business purpose and number of miles traveled suffices.
... If an auto's business expenses are deducted via the mileage rate, it is not subject to the Code Sec. 280F dollar caps, or the special rules that apply if qualified business use does not exceed 50% of total use.
... The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, highmileage model.
Disadvantages of mileage rate method. The mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.
Other applications of mileage allowance method.
Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed 550 per mile for employment-connected business mileage during 2009 (50.50 per mile for the first half of 2008; 58.50 per mile for the last half of 2008), whether the autos are owned or leased. (Rev Proc 2008-72, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos during 2009 may be valued at 55¢ per mile if the conditions specified in Reg § 1.61-21(e)(1) are met.
Other mileage rules for 2009. Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2009, the standard auto cost used to compute the FAVR allowance cannot exceed $27,200 (down from $27,500 for 2008). (Rev Proc 2008-72, Sec. 8.02(6))
In addition, for 2009, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 240 per mile (190 per mile for the first half of 2008; 270 per mile for the last half of 2008). (Rev Proc 2008-72, Sec. 7.02) The mileage rate for driving an auto for charitable use during 2009 will remain unchanged at 140 per mile (a statutory rate that's not adjusted for inflation). (Rev Proc 2008-72, Sec. 7.01)
Observation: The charitable standard mileage rate for Midwestern-related disaster relief-i.e., use of a vehicle to providing donated services to charity for Midwestern-related disaster relief-is increased to 70% of business mileage rate during the period beginning on the applicable disaster date and ending on Dec. 31, 2008 (e.g., 410 for the last half of 2008). In addition, volunteers donating services for Midwestern-related disaster relief can exclude from income mileage reimbursements during the period beginning on the applicable disaster date and ending on Dec. 31, 2008.