Tax Rule Changes for Driving in 2023

If you drive your vehicle for certain purposes, you may deduct the actual costs related to business driving or use an IRS-set mileage rate. The IRS standard mileage rates for 2023 (Notice 2023-03) are:

• Business mileage rate. If you’re self-employed, you can opt to use the IRS standard mileage rate for business driving in 2023 of 65.5 cents per mile. This is a 3-cent increase from the second half of 2022. If you use the IRS rate, you must reduce the basis of your vehicle by an IRS-set deemed depreciation rate. For 2023, this rate is 28 cents per mile. Note: If you use the standard mileage rate, you must opt to use it in the first year the car is available for business use. Then, in later years, you can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
• Medical driving. If you itemize deductions for 2023, you can use the IRS mileage rate of 22 cents per mile, which is the same rate that applied in the second half of 2022.
• Active duty members of the Armed Forces. You can use the IRS mileage rate of 22 cents per mile for moving expenses pursuant to a military order in connection with a permanent change of station. This is the same rate that applied in the second half of 2022.
• Charitable driving. If you itemize, you can use a rate of 14 cents per mile for driving your vehicle for charitable purposes (e.g., delivering Meals on Wheels). This rate is fixed by law and is not adjusted by the IRS.

Whether you use the actual expense method or the standard mileage rate, certain substantiation is required.

Dollar limits on depreciation. If you don’t use the IRS standard mileage rate and own the vehicle, you can claim depreciation attributable to the portion of total miles driven for business relative to total miles for the year as part of your “actual expense” computation. However, the deduction may not exceed a dollar limit set by the IRS (Rev. Proc. 2023-14). For vehicles placed in service in 2023, the limits—which are higher than those for vehicles placed in service in 2022—are:

• First year: $20,200 (or $12,200 if bonus depreciation is not used)
• Second year: $19,500
• Third year: $11,700
• Fourth and succeeding years: $6,960

Inclusion amounts for vehicles first leased in 2023. The deduction for annual lease payments must be reduced by an inclusion amount listing in an IRS table for this purpose (Rev. Proc. 2023-14). The inclusion amount does not affect vehicles valued at $60,000 or less. The impact on the deduction for lease payments is minimal. For example, if someone leases a vehicle for used exclusively for business in 2023 with a value of $71,000, the inclusion amount is only $65 in the first year. Assuming monthly lease payments on a 3-year lease for this vehicle would be $850 ($10,200 for the year), the deduction would be $9,350 ($10,200 – $850). Inclusion amounts for prior years may be found in IRS Publication 463.