IRS guidance explains changes to standard mileage rate rules and depreciation in the Tax Cuts and Jobs Act

On May 25, the IRS provided information to taxpayers about changes in the use of standard mileage rates and increased depreciation limits for passenger automobiles as a result of P.L. 115-97, known as the Tax Cuts and Jobs Act, which made amendments to Secs. 67 and 217.

In Notice 2018-42, the IRS modified Notice 2018-03, which provided the optional 2018 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes.

Because the TCJA suspended the miscellaneous itemized deduction under Sec. 67 for unreimbursed employee business expenses from 2018 to 2025, the notice explains that the standard mileage rate will not apply to those expenses during that period.

However, an exception to that disallowance applies to members of a reserve component of the U.S. armed forces, state or local government officials paid on a fee basis, and certain performing artists. They are permitted to deduct mileage expenses on line 24 of Form 1040, U.S. Individual Income Tax Return, (an above-the-line deduction) and may continue to use the business standard mileage rate, which remains at 54.5 cents per mile for these eligible taxpayers.

The next change is to the rate for moving expenses. Notice 2018-03 announced that the rate for 2018 was 18 cents per mile. The TCJA repealed the moving expense deduction for individual taxpayers from 2018 to 2025, except for U.S. armed forces members on active duty who move pursuant to a military order and incident to a permanent change of station to whom Sec. 217(g) applies.

The final change is to the depreciation allowances permitted pre- and post-TCJA. Under pre-TCJA law, under a fixed-and-variable-rate (FAVR) plan, the maximum standard automobile cost was $27,300 for 2018 for automobiles (not including trucks and vans) and $31,000 for trucks and vans. (Under a FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.)

Section 13202 of the TCJA increased the depreciation limits for passenger automobiles placed in service after Dec. 31, 2017. As a result, the maximum standard automobile cost is raised to $50,000 for passenger automobiles (including trucks and vans) placed in service after Dec. 31, 2017. Unlike the other TCJA changes discussed here, this increase is permanent.