The Internal Revenue Service (IRS) has announced significant changes to how taxpayers will calculate driving-related tax deductions starting in 2026. This adjustment includes an increase in the standard mileage rate for business travel while reducing rates associated with medical and moving expenses. The announcement was made in late December and aims to reflect evolving vehicle operating costs.
New Mileage Rates Unveiled
From January 1, 2026, taxpayers using their vehicles for business purposes can deduct 72.5 cents per mile, up from 70 cents in 2025. Conversely, the mileage rate for medical travel and qualifying moving expenses will decrease to 20.5 cents per mile, a reduction of half a cent. The charitable mileage rate remains constant at 14 cents per mile, as mandated by statute.
The IRS indicated that these updated rates are based on annual studies assessing both fixed and variable costs of vehicle operation, alongside adjustments for inflation. The new rates apply uniformly to all vehicle types, including gasoline, diesel, hybrid, and fully electric models.
Taxpayers have the option to choose between using the IRS standard mileage rate or calculating their actual vehicle expenses. However, specific rules govern these choices. For instance, taxpayers who own a vehicle and opt for the standard mileage rate for business use must do so in the first year the vehicle is placed in service. For leased vehicles, this method must be maintained throughout the entire lease period, including any renewals.
Tax Deductions and New Loan Provisions
Additionally, the IRS reminded taxpayers that most unreimbursed employee travel expenses are no longer deductible as miscellaneous itemized deductions. There are exceptions for certain groups, including eligible educators, specific state and local officials, performing artists, and certain military personnel. Only active-duty military members and certain intelligence community personnel are permitted to deduct moving expenses related to a permanent change of station.
These updates coincide with new federal guidance regarding a separate tax change known as the “No Tax on Car Loan Interest” provision, part of the One, Big, Beautiful Bill. Proposed regulations released by Treasury and IRS officials outline how taxpayers can deduct interest on qualifying vehicle loans taken out after December 31, 2024. This provision applies to loans for purchasing new, made-in-America vehicles intended for personal use.
The car loan interest deduction is available to both taxpayers who take the standard deduction and those who itemize. Eligible loan interest is capped at $10,000 per year, and the guidance clarifies which vehicles qualify based on U.S. final assembly. Moreover, lenders will have new reporting requirements, needing to file information returns detailing interest received and loan specifics to facilitate proper deduction claims.
Public comments on the proposed regulations will be accepted until February 2, 2026, via Regulations.gov. For further details regarding the mileage rates and vehicle-related tax provisions, taxpayers are encouraged to visit IRS.gov.