The IRS has announced a midyear increase to the standard mileage rate for business vehicle use, affecting cars, SUVs, vans, pickup trucks and panel trucks. The updated rate applies to gasoline, diesel, hybrid and electric vehicles and may impact how businesses track and deduct vehicle expenses for the remainder of 2026.

Understanding your options now can help maximize tax deductions and ensure proper compliance with IRS requirements.

Business Vehicle Expense Deduction Methods

Businesses generally have two options for deducting vehicle expenses.

1. Actual Expense Method

Under the actual expense method, you deduct the business use portion of vehicle costs, including:

• Fuel and oil
• Insurance
• Repairs and maintenance
• Tires
• Registration and license fees
• Depreciation

While this method can provide larger deductions in some situations, it requires detailed recordkeeping throughout the year.

It is important to note that passenger vehicles may be subject to IRS luxury vehicle depreciation limits. For 2026, the maximum first year depreciation deduction for a qualifying passenger vehicle is generally $20,300 when bonus depreciation is claimed. The allowable deduction is then adjusted based on the percentage of business use.

2. Standard Mileage Rate Method

Many business owners choose the standard mileage rate because it simplifies recordkeeping. Instead of tracking every vehicle related expense, you multiply business miles driven by the IRS approved mileage rate.

To qualify:

• The standard mileage rate generally must be selected in the first year a vehicle is used for business.
• Businesses operating five or more vehicles simultaneously typically cannot use this method.
• Leased vehicles must continue using the standard mileage rate for the entire lease term if elected initially.

Even when using the standard mileage rate, adequate records are still required. Be sure to document:

• Business mileage driven
• Dates of travel
• Destinations
• Business purpose
• Individuals involved in business meetings or activities

IRS Business Mileage Rate Increased July 1, 2026

The IRS typically adjusts mileage rates annually based on vehicle operating costs. However, rising fuel prices prompted a rare midyear adjustment for 2026.

2026 Business Mileage Rates

Period	Rate
January 1 to June 30, 2026	72.5 cents per mile
July 1 to December 31, 2026	76 cents per mile

The new rate represents an increase of 3.5 cents per mile for business travel beginning July 1, 2026.

For businesses and self employed taxpayers with significant vehicle usage, the increase could result in meaningful additional deductions or higher tax free reimbursements under accountable reimbursement plans.

Medical and Moving Mileage Rates Also Increased

The IRS also increased the mileage rate for qualifying medical and moving travel.

2026 Medical and Moving Mileage Rates

Period	Rate
January 1 to June 30, 2026	20.5 cents per mile
July 1 to December 31, 2026	23.5 cents per mile

These rates are lower than the business mileage rate because they do not include depreciation costs.

Medical Mileage Deductions

Taxpayers may deduct qualifying medical mileage only if they:

• Itemize deductions, and
• Have total eligible medical expenses that exceed 7.5% of adjusted gross income.

Moving Mileage Deductions

Moving expense deductions, including mileage, are generally limited to:

• Certain active duty military personnel
• Certain members of the intelligence community

Unlike medical expenses, taxpayers who qualify for moving deductions do not need to itemize.

Charitable Mileage Rate Remains Unchanged

The mileage rate for charitable driving remains 14 cents per mile.

Because this rate is established by federal law, Congress must approve any changes.

Which Vehicle Deduction Method Is Best?

The right vehicle expense deduction strategy depends on several factors, including:

• Annual mileage driven
• Vehicle type
• Operating expenses
• Depreciation opportunities
• Business use percentage

While the standard mileage rate offers simplicity, the actual expense method may produce larger deductions in certain situations.

Need Help Maximizing Your Vehicle Tax Deductions?

Choosing between the actual expense method and the standard mileage rate is not always straightforward. The recent IRS mileage rate increase adds another layer of complexity for business owners and self employed taxpayers.

TRP Sumner can help evaluate your vehicle expenses, determine the most beneficial deduction method and develop tax planning strategies to maximize savings for the remainder of 2026.

This blog post is for informational purposes only and does not constitute tax, accounting, or legal advice. Laws and regulations are subject to change, and the information provided may not apply to all situations. Consult a qualified professional for guidance specific to your circumstances.