Transportation Expenses for 2009

Remember how the rising oil prices prompted the Service to administratively adjust the mileage rates for the second half of 2008, going from 50.5 cents per mile pre-July 1 to 58.5 cents per mile post-June 30? Well, oil prices are collapsing – along with everything else – and the recently announced mileage rates have gone both up and down, down from the rate applicable to the end of the year but up from the rate originally set for all of 2008. That rate in 2009 will be 55 cents per mile. The standard mileage rate means the applicable amount provided by the Service for optional use by employees or self-employed individuals in computing the deductible costs of operating automobiles (including vans, pickups, or panel trucks) they own or lease for business purposes.

A taxpayer may use the business standard mileage rate with respect to an automobile that is either owned or leased by the taxpayer. A taxpayer generally may deduct an amount equal to either the business standard mileage rate times the number of business miles traveled or the actual costs (both fixed and variable) paid or incurred by the taxpayer that are allocable to traveling those business miles. The business standard mileage rate may not be used to compute the deductible expenses of: (i) automobiles used for hire, such as taxicabs; or (ii) five or more automobiles owned or leased by a taxpayer and used simultaneously, such as in fleet operations.

The business standard mileage rate may not be used to compute the deductible expenses of an automobile for which the taxpayer has: (i) claimed depreciation using a method other than straight-line for its estimated useful life; (ii) claimed a §179 deduction; (iii) claimed the special bonus depreciation allowance; or (iv) used the Modified Accelerated Cost Recovery System (MACRS). By using the business standard mileage rate, the taxpayer has elected to exclude the automobile (if owned) from MACRS. If, after using the business standard mileage rate, the taxpayer uses actual costs, the taxpayer must use straight-line depreciation for the automobile's remaining estimated useful life (subject to the applicable depreciation deduction limitations under §280F).

For owned automobiles placed in service for business purposes, and for which the business standard mileage rate has been used for any year, depreciation is considered to have been allowed at the rate of 21 cents per mile for 2008 and 2009, for those years in which the business standard mileage rate was used. If actual costs were used for one or more of those years, these rates do not apply to any year in which actual costs were used. The depreciation described above reduces the basis of the automobile (but not below zero) in determining adjusted basis.

Actual cost depreciation on an automobile is based on the vehicle’s cost, but subject to the §280F limitations on listed property. In particular, the depreciation is limited to $2,960 for automobiles placed in service in 2008. This should be contrasted with standard mileage, which is not subject to this limitation, and is not based on vehicle cost. Assuming depreciation limitations for automobiles remains the same in 2009, at 21 cents a mile, a high-mileage automobile (over about 14,100 business miles) may actually provide a higher deduction than if the taxpayer uses the statutory depreciation for automobiles n. However, in the second year, the depreciation limit would increase to $4,800, which requires over 22,860 miles to generate the same deduction as under standard mileage. On a time-value-of-money basis, however, the upfront excess of allowance under standard mileage in the first year may make up for a deficiency in the second year.

Parking fees and tolls attributable to use of the automobile for business purposes may be deducted as separate items. Likewise, interest relating to the purchase of the automobile as well as state and local personal property taxes may be deducted as separate items.

The standard mileage rate for use of an automobile to obtain deductible medical care or as part of a move for which the expenses are deductible is set at 24 cents per mile for purposes of computing the medical or moving deduction. As with the business standard mileage, this went both down from its 27-cents-per-mile level for the second half of 2008 but up from its 19-cents-per-mile level for the first half of 2008. Parking fees and tolls attributable to use of the automobile for medical or moving purposes may be deducted as separate items.

By contrast, the charitable mileage rate for use of an automobile in connection with rendering gratuitous services to a charitable organization is set by the Code without inflation adjustments at 14 cents per mile for purposes of computing the charitable contribution deduction. Most recently, Independent Sector, an umbrella group of nonprofits, noted that their volunteers can only deduct 14 cents per mile when driving on behalf of charities serving their communities, far less than if they were conducting private business, moving, or obtaining health services. In recent months, charitable organizations have found it increasingly difficult to attract and retain volunteers to drive for them due to the fluctuating price of gasoline and the current economic crisis. Each year there is a discussion about making a legislative fix but thus far nothing has been done.

For more information, please see the following courses: The Best Individual Income-Tax Update Course by Surgent McCoy (BITU) and The Best Federal Tax Update Courseby Surgent McCoy (BFTU).