Last week, I filled my Honda’s gas tank for the first time since July. My situation might be extreme, but overall car usage has been down since the beginning of the pandemic in March 2020. No matter how much or how little you use your personal vehicle, you could qualify for a tax deduction if you drive for business, charitable, medical, or moving purposes. How much you can deduct and how you report the expense depends on your situation.
Every year, the IRS issues the new standard mileage rates based on the average actual cost per mile to operate a vehicle. The average cost per mile is calculated to include fuel, maintenance, insurance, and depreciation. The IRS recently issued the new standard mileage rates for 2021.
Beginning on January 1, 2021, the standard mileage rates were either reduced due to lower fuel prices or stayed the same due to statutory constraints. Here are the details:
- 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020
- 16 cents per mile driven for medical purposes, down 1 cent from 2020
- 14 cents per mile driven in service of charitable organizations, set by statute, and remaining unchanged from prior years
- 16 cents per mile driven by members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station, down 1 cent from 2020
Even at the lower rates, the standard mileage can really add up. You also have the option of calculating the actual costs of using your vehicle instead of using the standard mileage rates. Qualified deductible vehicle expenses can total the greater of actual expenses or a standard rate.
Most people choose to use the standard rate because it’s easier and usually results in a larger deduction amount. Both expense deduction options are based on the number of miles driven during the calendar year. You must track your mileage by usage type for each vehicle no matter which method you use.
Taking vehicle deductions for qualified business, charitable, medical, or moving purposes involves a lot of tracking, but the effort can be worth it. There are apps you can put on your phone to help. Once you get your mile tracking process down, you’ll see that those deductions can add up and reduce the bottom line on your tax bill.