Taxpayers who expect to do some business-related driving next year will probably be happy to learn that the optional standard mileage rates for 2021 are now available from the Internal Revenue Service. Included in Notice 2021-02, the new standard mileage rates will apply on January 1, 2021.
The optional standard mileage rates are one of two methods for determining the amount of deductible auto expenses—the other being the actual expense method, which is explained in IRS Publication 463. In addition to business use, the IRS says taxpayers can use the standard rates to determine operating costs for “charitable, medical, or moving purposes.”
What are the 2021 optional standard mileage rates?
The optional standard mileage rates outlined in the Notice 2021-02 are:
- 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020,
- 16 cents per mile driven for medical, or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and
- 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.
“The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile,” the IRS explains. “The rate for medical and moving purposes is based on the variable costs.”
When can I use the optional standard mileage rates to determine auto expenses?
The IRS says you are only eligible to use the standard mileage rate if you choose it “the first year the car is available for business use.” Taxpayers who do that “can choose either the standard mileage rate or actual expenses [in later years].”
Taxpayers who lease a vehicle do not have the same flexibility in later years: “Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.”
The Tax Cuts and Jobs Act imposes other limitations
The IRS says that the Tax Cuts and Jobs Act does not allow taxpayers to claim the following automobile-related deductions:
- Miscellaneous itemized deduction for unreimbursed employee travel expenses
- Deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station
What else is included in Notice 2021-02?
Notice 2021-02 also has information about the following automobile-related tax issues:
- The maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan
- The maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule
Check out the notice at IRS.gov/Pub/IRS-Drop/n-21-02.pdf.