The IRS recently announced an increase in the optional standard mileage rate for business vehicle use for the second half of 2026. The adjustment reflects higher fuel costs this year. It's accompanied by a hike in the standard mileage rate for medical travel and qualifying moving expenses for certain individuals. Let's take a closer look at what's changed and why.
If you use a vehicle for business purposes, you generally have the option to deduct the actual expenses attributable to your business use. This includes expenses such as gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you may claim a depreciation allowance for the vehicle based on the percentage of business use. However, annual write-offs are subject to "luxury car" limits that are indexed annually.
The maximum first-year depreciation deduction allowed for a passenger car placed in service in 2026 is generally $20,300 (the usual $12,300 deduction + $8,000 for bonus depreciation). So the maximum first-year deduction for a vehicle used 90% for business in 2026 would be limited to $18,270 (90% of $20,300).
Keeping track of every vehicle-related expense under the actual expense method can be burdensome, but you may have a simpler option: Instead of deducting your actual expenses, you may be able to use an IRS-approved standard mileage rate. This shortcut is available to most taxpayers. However, you can't use the standard mileage rate if you:
Important: To use the standard mileage rate for a vehicle you own, you must choose it in the first year the vehicle is available for use in your business. In later years, you can choose to use the standard mileage rate or actual expenses. If you switch to actual expenses, however, special depreciation rules apply. For a leased vehicle, taxpayers electing the standard mileage rate must use that method for the entire lease period, including renewals.
With the standard mileage rate, you don't have to account for all your actual expenses. But you must still record the mileage for each business trip, the dates, the destinations, the names and relationships of the business parties involved, and the business purpose of the travel. The rate is adjusted annually by the IRS.
Most employees can't deduct unreimbursed business mileage on their federal income tax returns. However, employers may use the standard mileage rate to reimburse employees tax-free under an accountable plan, provided applicable substantiation requirements are met.
The IRS generally adjusts the standard mileage rates annually based on a study of vehicle operating costs. However, unusual circumstances may prompt a midyear change.
Initially, the IRS established a standard mileage rate of 72.5 cents per mile for business vehicle use in 2026 (up 2.5 cents from 70 cents per mile in 2025). But recent increases in fuel prices prompted a midyear adjustment. Such adjustments are rare; the last time the IRS changed its mileage rates midyear was in 2022.
Effective July 1, 2026, the standard rate for business vehicle use increased to 76 cents per mile — up 3.5 cents from the first half of the year. This rate is scheduled to remain in effect through year end. The IRS is expected to publish its standard mileage rates for 2027 later this year.
Here's an example to show how the two standard mileage rates apply in 2026. For simplicity, assume that you drive 10,000 miles every six months on business. You also incur $1,000 in related tolls and parking fees during the year.
Based on the initial IRS rate, your cents-per-mile deduction for business driving for the first six months of 2026 is $7,250 (10,000 × $0.725). However, for the last six months of the year, you can deduct $7,600 (10,000 × $0.76) for business mileage. So, your total deduction for 2026 would be $15,850 ($7,250 + $7,600 + $1,000 in tolls and parking fees).
In addition to adjusting the rate for business driving, the IRS announced that the new rate for qualifying medical care and eligible moving expenses is 23.5 cents per mile for the remainder of 2026 (up from 20.5 cents per mile for the first half of the year). Under current law, the moving rate is available only to certain active-duty military personnel and certain members of the intelligence community.
Important: The 14-cents-per-mile rate for charitable use of a vehicle remains unchanged. It's set by statute, so it can only be amended by Congress.
Be aware that you still may fare better from a tax standpoint with the actual expense method than with the standard mileage rate — even after the latest increase. Contact your tax advisor for help determining which method is right for your situation.
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