Standard mileage rates increase, while higher depreciation limits kick in
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 or
panel truck will be:
- 54.5 cents per mile for business miles driven (up from 53.5 cents in 2017);
- 18 cents per mile for medical and moving expenses (up from 17 cents in 2017); and
- 14 cents per mile for miles driven for charitable purposes (permanently set by statute at 14 cents).
Comment. A taxpayer may not use the business standard
mileage rate after using a depreciation method under Code Sec. 168 or
after claiming the Code Sec. 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, etc., and depreciation).
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 passengers 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.
Comment. 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 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 form the Code Sec. 280F annual
depreciation caps because it has a gross vehicle weight rating in excess
of 6,000 pounds or is otherwise exempt.
For a discussion of what’s best for your business situation, please contact our office.