INTERNAL REVENUE SERVICE SETS OPTIONAL 2026 STANDARD MILEAGE RATES

On December 29, 2025, the Internal Revenue Service (“IRS”) issued the optional 2026 standard mileage rate for taxpayers to use in calculating the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes.  The Notice also provides the amount taxpayers must use in calculating reductions to the basis for depreciation taken under the business standard mileage rate.

The standard mileage rate for transportation or travel expenses for 2026 is $.725 per-mile for all business use.  Employers can reimburse employees up-to this amount for business mileage traveled on behalf of the employer without any taxable earnings to the employee but allowing a business deduction to the employer.

Employees cannot claim an itemized deduction on their personal return for unreimbursed travel expenses, except for certain educator expenses.

The entire Notice can be viewed here.

 

BUSINESS EXEMPTIONS FROM INTEREST EXPENSE DEDUCTION LIMITATIONS

For the 2025 tax year, the deduction for business interest expense is generally limited to 30% of the taxpayer’s adjusted taxable income; however, several businesses are exempted from the business interest expense limitation rules.  These include small businesses with average annual gross receipts for the three-tax-year period ending with the prior tax year of an amount less than an inflation-adjusted threshold.  For tax years beginning in 2025, this threshold is $31 million.

Businesses should consult with their tax consultant if interest expense has been limited in the past or is expected to be limited for 2025.  The IRS Fact Sheet regarding the interest expense limitation is available here.

 

NEW DEDUCTIBLE PERSONAL CAR LOAN INTEREST

Proposed rules have been issued regarding the new deductible car loan interest provisions in the “Big Beautiful Bill”. The new car loan interest tax deduction (up-to $10,000) for years 2025 - 2028 is an “above-the-line deduction” for individuals, meaning the deduction from income is available whether you itemize or take the standard deduction. 

To be eligible, the loan must:

• Be taken out after December 31, 2024, 
• Be secured by a lien on the vehicle, 
• Be used to purchase a qualified passenger vehicle, 
• Include a valid vehicle identification number (“VIN”), 
• Be issued by a legitimate lender or dealership, and 
• Include interest payments made during the tax year.

The vehicle must:

• Be manufactured mainly for use on public roads,
• Have at least two wheels,
• Be a car, minivan, SUV, pickup truck, van, motorcycle, or all-terrain vehicle,
• Be assembled in the United States,
• Have a gross vehicle weight rating under 14,000 pounds, and
• Be brand new (used vehicles do not qualify).

You must:

• Be the original owner of the vehicle,
• Use the vehicle primarily for personal use (not business use),
• Report the VIN on your tax return when claiming the deduction, and
• Meet certain income requirement (phase-out begins at $100,000 for single filers and $200,000 for joint filers).

If an employee is reimbursed for mileage incurred on behalf of the employer, the proposed regulations provide that “if the taxpayer meets the personal use standard (more than 50% expected use for personal travel), the interest deduction would be applicable. This determination, based on proposed rules, is only made once (at the time of purchase) and is not subject to re-determination for each subsequent year.  Taxpayers should consult with their respective tax consultants regarding any personal vehicle purchases made on or after January 1, 2025.