Standard mileage rate vs. actual expenses

This page is general information, not tax advice.

Publication 463 gives you two ways to figure the deduction for the business use of your car. Both need a mileage log. The standard mileage rate needs the log to count the business miles. The actual expense method needs it to find the business-use percentage. The rules are in chapter 4 of Publication 463.

The standard mileage rate

Multiply your business miles by the rate for the period. For 2025 the rate is 70 cents a mile. For 2026 it is 72.5 cents through June 30 and 76 cents from July 1. Add business-related parking fees and tolls. That is the deduction.

The rate replaces depreciation, lease payments, maintenance, repairs, gasoline, oil, insurance, and registration fees. You cannot deduct those separately in a year you use the rate. The business share of car loan interest and personal property tax on the car can still be deducted by a self-employed person.

Actual expenses

Add up what the car cost to run for the year. Publication 463 lists depreciation, licenses, gas, oil, tolls, lease payments, insurance, garage rent, parking fees, registration fees, repairs, and tires. Multiply the total by the business-use percentage, which is business miles divided by total miles for the year. Parking and tolls for business trips are deducted in full.

Depreciation has its own limits. For a passenger automobile placed in service in 2025 that qualifies for the special depreciation allowance, the first-year limit is $20,200. Without the special allowance it is $12,200. The limits for the following years are $19,600, $11,800, and $7,060 for each later year. The limit is reduced by the personal-use percentage, and if the limits leave unrecovered basis at the end of the recovery period, you can keep deducting up to the later-year limit until it is recovered. The tables and the section 179 rules are in chapter 4 of Publication 463 and in Publication 946. Depreciation is claimed on Form 4562, whose Part V asks the vehicle questions in place of Schedule C Part IV.

The first-year rule

If you want to use the standard mileage rate for a car you own, you must choose it in the first year the car is available for business. In later years you can use either method.

The choice does not work the other way. If you use actual expenses in the first year and depreciate the car under MACRS, claim a section 179 deduction, or claim the special depreciation allowance, you cannot use the standard mileage rate for that car in any later year. Straight-line depreciation is the one exception that keeps the standard rate available.

For a leased car, the standard mileage rate must be used for the entire lease period if you choose it at all.

Who cannot use the standard rate

You cannot use the standard mileage rate if you

• use five or more cars at the same time, such as in a fleet operation
• claimed depreciation on the car by any method other than straight line
• claimed a section 179 deduction on the car
• claimed the special depreciation allowance on the car
• claimed actual car expenses after 1997 for a car you lease

Alternating between cars is not the same as using them at the same time. A salesperson who alternates among three cars and two vans can use the standard rate for all of them.

The depreciation built into the standard rate

The standard mileage rate is not only fuel and maintenance. Part of every year's rate is depreciation, and the IRS treats that part as depreciation you claimed. It reduces the basis of your car whether or not you thought about it, and it matters the day you sell the car. Publication 463 publishes the rate for each year.

Note. Verify against the current Publication 463 before publish, and add the 2026 figure when the 2026 edition is published.

For each year you used the standard rate, multiply the business miles by that year's figure and subtract the result from the car's basis, but not below zero. Publication 463 gives the example of a car bought in 2020 for $30,500, used only for business at the standard rate through 2025, with depreciation of $26,224 in total and an adjusted basis of $4,276 at the end of 2025. When you sell or trade the car, the gain or loss is the amount received less the adjusted basis, and gain up to the depreciation claimed is ordinary income. A trade-in is a sale of the old car and a purchase of the new one.

Figuring it both ways

Publication 463 suggests that if you qualify for both methods, you figure the deduction both ways to see which gives the larger amount. The answer usually depends on how expensive the car is to run and how many business miles you drive. A high-mileage driver in an inexpensive car tends to do better with the standard rate. A low-mileage driver in an expensive or leased car tends to do better with actual expenses. The first-year rule means the comparison matters most in the first year.

Changing methods later

If you used the standard mileage rate in the first year and change to actual expenses later, you must use straight-line depreciation over the car's remaining useful life, starting from the basis reduced by the depreciation component for the years you used the rate, and the annual amount cannot exceed the depreciation limit for that year.

How Miles handles this

Miles records every trip and every vehicle expense, so both methods can be figured from the same log. The deduction method is chosen per vehicle per year, and the app explains the first-year rule when you set up a vehicle. A Both methods card figures the deduction both ways, at the standard rate for each rate period and as actual expenses times the business-use percentage, and the tax summary shows the method you chose. A warning appears when five or more vehicles are in business use at once. The rate table carries the depreciation component for each year, so the tax summary shows the depreciation taken and the adjusted basis to date from the cost on the vehicle record. Review note. Whether the app figures the gain or loss on a sale, or stops at the adjusted basis, needs a product decision.

Miles is coming soon.

Canada has no standard rate for the self-employed and recovers the cost of a car through capital cost allowance. See T2125 motor vehicle expenses.