Here's a tax deduction many Americans who own cars often overlook: If you drive your car during specific activities -- for business, medical or charitable purposes -- you may be eligible to claim a valuable deduction on your federal tax return. Of the approximately 30 percent of households that typically claim itemized deductions, only a small fraction does so for miles driven.
Here are the formulas the IRS allows you to use in claiming deductions for miles driven on your 2018 return:
- Business: 54.5 cents per mile (up from 53.5 cents per mile in 2017)
- Medical or moving purposes: 18 cents per mile (up from 17 cents in 2017)
- Charitable purposes: 14 cents per mile (unchanged from 2017)
These deductions will be even more valuable for 2019, when the business-use deduction goes to 58 cents per mile, and moving and medical purposes goes to 20 cents per mile (charitable use remains at 14 cents).
Business mileage deduction
If you use your vehicle for business, you may find that deducting your actual operating costs can be a better tax deduction than the one for miles driven.
The actual-expense method entails these deductible expenses:
- Interest paid on a vehicle loan or lease payments (subject to IRS limits)
- Vehicle depreciation
- Fees for registration, license and vehicle taxes
- Parking fees and tolls
- Garage rent
- Insurance, fuel and oil
- Maintenance, tires and repairs
How do you know which is better for you? The general rule is that the more expensive your vehicle is, the higher its operating costs, and the lower its gas mileage, the more likely it is that the actual-expense method would produce a larger tax deduction for you.
Because you're required to keep the same records regardless of which method you use, you'll already have the information needed to compare which is better. Ask your tax preparer to calculate both methods to make sure you get the biggest deduction.
It's important to know that under last year's tax law, beginning in 2018, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Previously, the miles driven from your place of work to another work-related location and back to your place of work were deductible.
Medical mileage deduction
When you drive to receive medical care, the miles driven can be added to your other out-of-pocket costs, including doctors' visits, medical care and prescriptions not reimbursed by insurance, and medical devices. An adjusted gross income limit applies. In 2018, these costs (including the mileage) must exceed 7.5 percent of your AGI before any of these costs can be deducted. For 2019, this limit increases to 10 percent of AGI.
Moving mileage deduction
The new tax law also suspended the deductions you could claim for miles driven in connection with moving your place of residence. However, the suspension doesn't apply to members of the Armed Forces on active duty who move pursuant to a military order to a permanent change of station.
Charitable mileage deduction
If you drove to and from a charity to perform volunteer work or to donate your services, you can claim this deduction. Alternatively, you can deduct the actual cost of gas and oil used. Either way, you can also add parking and tolls to the amount claimed under either method, if none of these costs were repaid to you by the charity. This deduction isn't subject to any AGI limits.