Mileage Deduction: Standard Rate vs. Actual Expenses

The IRS gives you two ways to deduct vehicle costs for business use. Most self-employed workers pick the standard mileage rate without running the numbers on both. Sometimes that's right. Sometimes it leaves hundreds or thousands of dollars on the table.

Here's how to figure out which method wins for your situation.

The standard mileage rate

In 2026, the IRS standard mileage rate for business driving is $0.70 per mile. Drive 10,000 business miles, deduct $7,000. That's it.

The rate is set by the IRS annually, usually in December for the following year. It's designed to approximate the average cost of operating a vehicle — gas, oil, tires, maintenance, depreciation, and insurance all bundled into one number. You track miles, apply the rate, done.

What you cannot additionally deduct under the standard rate: gas, oil changes, insurance, repairs, registration fees, or depreciation. The rate already covers all of that. You can still deduct actual loan interest and parking/tolls separately.

The actual expense method

The actual expense method deducts the real cost of operating your vehicle, multiplied by your business-use percentage.

Business-use percentage = business miles / total miles driven for the year.

Deductible expenses: gas, oil, tires, repairs, insurance, registration fees, lease payments (if leased), and depreciation (if owned). Add them all up, multiply by the business-use percentage, that's your deduction.

Depreciation is where the actual method gets complicated. For owned vehicles, you use MACRS depreciation over 5 years, subject to annual luxury auto limits that cap how much you can depreciate per year regardless of actual vehicle cost. In 2026, the first-year depreciation cap for most passenger vehicles is around $12,400 (or higher if you take the Section 179 deduction, which has its own limit of $20,400 for vehicles).

Heavy SUVs over 6,000 pounds GVWR are exempt from the luxury auto caps and can be depreciated more aggressively under Section 179. This is why you occasionally see HVAC contractors and other tradespeople buying large SUVs in December.

Which method wins

Standard rate typically wins for:

• Lower-cost vehicles (older cars, economical sedans)
• High-mileage drivers relative to vehicle value
• Anyone who doesn't want to track receipts

Actual expenses typically win for:

• Newer, more expensive vehicles
• Lower annual business mileage
• High actual costs (premium fuel, frequent repairs, expensive insurance)
• First year of vehicle ownership, especially with bonus depreciation

The math is blunt: if your actual operating cost per mile exceeds $0.70, the actual method wins. If it's under $0.70, the standard rate wins.

A $55,000 vehicle driven 12,000 business miles per year at $0.68 actual cost per mile produces an $8,160 deduction under actual (0.68 × 12,000) vs. $8,400 under standard (0.70 × 12,000). Standard wins by $240. Run the numbers at your vehicle cost and mileage before assuming.

The commitment rule

This matters: if you use the standard mileage rate in the first year you place a vehicle in service, you can switch to actual expenses in a later year. If you start with actual expenses in year one, you cannot switch to the standard mileage rate for that vehicle. Ever.

Choose carefully in year one, especially for expensive new vehicles where bonus depreciation in year one could produce a large deduction under the actual method that you can't replicate later.

What counts as a business mile

Business miles are trips made for legitimate business purposes: client meetings, job sites, supply runs, business errands, travel to a temporary work location. Your regular commute to a fixed office location doesn't count, even if that office is a client's building you go to every day.

If you work from home, every trip to a client site, meeting, or business errand is a business mile because your home is your principal place of business.

Tracking requirements

The IRS requires a contemporaneous mileage log — meaning recorded at or near the time of the trip, not reconstructed from memory in April. For each business trip you need: date, destination, business purpose, and miles driven.

A spreadsheet works. So does any mileage tracking app (MileIQ, Everlance, TripLog). The standard mileage rate is generous enough that it's usually worth the tracking discipline to claim it.

Calendar entries and Google Maps history are not a substitute for a mileage log. They can support one, but they're not adequate on their own if you're audited.

The standard mileage rate and depreciation caps adjust annually. Figures above reflect 2026 tax year. Verify current rates at irs.gov before filing.