On May 25, The Internal Revenue Service announced information about changes from the Tax Cuts and Jobs Act affecting:
• Moving expenses
• Vehicle expenses and unreimbursed employee expenses
• Higher depreciation limits for some vehicles
Moving Related Expenses
The TCJA, the tax overhaul that Congress passed last December, suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, until Jan. 1, 2026. During that suspension period, the IRS will not allow deductions for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. However, the suspension does not apply to members of the armed forces on active duty who move because of a military order related to a permanent change of station.
Unreimbursed Employee Expense Deduction
The new tax law also suspends all miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. The change has an impact on expenses such as uniforms, union dues and the deduction for business-related meals, travel and entertainment that the employer is not reimbursing.
That means the business standard mileage rate listed in Notice 2018-03, which was issued before the tax overhaul passed, can’t be used to claim an itemized deduction for unreimbursed employee travel expenses in taxable years starting after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance on the matter Friday in Notice 2018-42. It supersedes the earlier notice and includes info about the update to the standard mileage rates, along with details about the suspension of the deduction for operating a vehicle for moving purposes.
2018 Standard Mileage Rates
In Notice 2018-03, which the IRS issued earlier this year, the standard mileage rates for use of a car, van, pickup or panel truck for 2018 remain:
- 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
- 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
- 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.
The standard mileage rate for business comes from a yearly study of fixed and variable costs of operating an automobile, while the rate for medical purposes depends on variable costs.
Taxpayers can opt to calculate the actual costs of using their vehicle instead of using the standard mileage rates.
A taxpayer can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle, however. On top of that, the business standard mileage rate cannot be used for more than four vehicles simultaneously.
Increased Depreciation Limits
The new tax law increases the depreciation limitations for passenger automobiles that have been placed in service after Dec. 31, 2017, for purposes of calculating the allowance under a fixed and variable rate plan. The maximum standard automobile cost can’t exceed $50,000 for passenger automobiles, trucks and vans that have been placed in service after Dec. 31, 2017. Prior to the change, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.
If you have questions regarding these changes, contact an MCB Tax Advisor at 703-218-3600.