IRS increases business standard mileage rate to 50.5 cents-per-mile for 2008

Higher fuel and vehicle costs have pushed the standard mileage reimbursement rate to 50.5 cents-per-mile for all business miles effective January 1, 2008. However, the standard mileage rate for personal-use moving and medical expenses dropped from 20 cents-per-mile to 19-cents-per-mile. The rate for the charitable deduction remains at 14 cents-per-mile.

Knowing what the 2008 rates are before they become effective is important since many employers reimburse their employees for business miles driven and require time to fix their payroll systems and finalize their budgets for the next year.

Business mileage rate

The new rate of 50.5 cents-per-mile for 2008 is a two cent increase over the 2007 rate of 48.5 cents-per-mile. The depreciation component of the business standard mileage rate also increases for 2008 to 21 cents-per-mile for vehicles purchased and placed on the highway in 2008 (i.e. placed into service). Such depreciation reduces the taxpayer’s tax basis in the vehicle.

The standard business mileage rate may not be used for automobiles used for hire (for example, taxicabs), or when five or more automobiles are owned or leased and use simultaneously by the taxpayer (for example, a fleet operation). The standard mileage rate can not be used to compute the deductible expenses of an automobile that the taxpayer has claimed depreciation for using a method other than the straight-line method for estimating its useful life.

Calculating the deduction

Taxpayers can use either the business standard mileage rate or the actual expense method to compute deductible expenses associated with the business use of their personal automobile. Actual costs that can be deducted include gas, oil, tires, repairs, parking, insurance, financing interest, taxes, licenses, and depreciation.

Alternatively, taxpayers can use the business standard mileage rate. This deduction is calculated by multiplying the standard mileage rate by the number of business miles traveled. However, parking and tolls, as well as financing interest and state vehicle taxes can be included.

Medical and moving rates fall

The IRS has reduced the standard mileage rate for medical and moving expenses by 1 cent to 19 cents-per-mile for 2008. While fuel costs rose, certain other average operating costs for personal-use vehicles were slightly lower, accounting for the 1 cent drop from the 2007 rate.

Charitable rate unchanged

The mileage rate used for charitable deduction purposes will remain unchanged at 14 cents-per-mile for 2008. Unlike the other mileage rates, the rate for the charitable deduction is set by statute, not the IRS.

(IR-2007-192)