Standard Mileage Rate
If you use the standard mileage rate (SMR) method, you
calculate the fixed and operating costs of your vehicle by
multiplying the number of business
miles traveled during the year by the business standard
mileage rate. This rate is set by the IRS and adjusted annually.
For 2001, the rate is 34.5 cents per mile; for 2002, it is 36.5
cents per mile.
While very simple to use, the SMR is not available to
everyone. Specifically, this rate may not be used to compute the
deductible expenses for:
- vehicles used for hire, such as taxis
- two or more vehicles simultaneously, as in fleet-type
operations (this does not include situations where you own
more than one vehicle, such as a car and a truck, but you
don't use them at the same time; in that case, you can still
use the SMR)
As of 1998, the standard mileage rate can be
used for cars that you lease, not just those
that you own, provided that you continue to use
this method for the entire lease term (or the
remainder of the term, for leases that began
For all practical purposes, if you want to use the standard
mileage rate for a car, you must use it in the very first year
you place it in service for your business. If you do that, in
later years you can switch between the actual
cost method, and the standard mileage rate, depending on
which method yields the bigger deduction in any given year.
However, once you use the standard mileage rate, you must use
method of depreciation if you switch to the actual cost
Ordinarily straight-line gives you a smaller deduction than
the quicker MACRS
method of depreciation. The SMR and MACRS are basically
incompatible, and if you've ever used MACRS for a car, you can
never use the SMR method for that car.
What's included in the SMR? Using the standard mileage
rate takes the place of deducting almost all the operating and
fixed business costs of your vehicle, such as maintenance and
repairs, tires, gas, oil, insurance, and license and
registration fees. However, you can still deduct parking fees
and tolls that are directly related to business (i.e., not
commuting) in addition to the SMR. For business owners, interest
on loans for vehicles and taxes attributable to the operation of
these vehicles are also deductible in addition to the SMR.
When you use the standard mileage rate method, the mileage
rate includes a specific amount for depreciation. This means
that you can't claim an additional deduction for depreciation
when you use the SMR. It also means that if you use the SMR,
when you sell your car and need to determine whether you had any
gains, you must adjust the basis of your vehicle for each
year the method was used.
For each year the standard mileage rate has been used, you
must multiply your business mileage for the year by the amount
shown in the chart, and then reduce your car's tax basis (and
increase your potential taxable gains) by that amount.
|Year Method Used
||Amount of Adjustment
(Cents per Mile)
For example, if a car is used for 7,000 business miles in
2001, the basis would be reduced by $1,050 (7,000 x $0.15).
Pre-1990 use of a vehicle in excess of 15,000 miles in one
year is disregarded for the purpose of basis adjustment, even if
the actual business mileage was higher.