The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 50.5¢ per mile for business travel after 2007. That's 2¢ more than the 48.5¢ allowance for 2007 business travel. However, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 19¢ per mile, down 1¢ from the 2007 allowance of 20¢ per mile.  [Rev Proc 2007-70, 2007-50 IRB, IR 2007-192]

Simplified deduction method. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2007-70, Sec. 5.04)

The standard mileage rate may not be used for a purchased auto if:

• it was previously depreciated using a method other than straight-line for its estimated useful life;
• a Code Sec. 179 expensing deduction was claimed for the auto;
• the taxpayer depreciated it using MACRS under Code Sec. 168 ; or
• the vehicle is used for hire, such as a taxicab. (Rev Proc 2007-70, Sec. 5.06)

Also, the standard mileage rate can't be used to compute the deductible expenses of five or more autos owned or leased by a taxpayer and used simultaneously (such as in fleet operations). (Rev Proc 2007-70, Sec. 5.06(1)(b))

Rural mail carriers who receive qualified reimbursements also can't use the standard mileage rate. (Rev Proc 2007-70, Sec. 5.06(4))

A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight line depreciation over the auto's remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 2007-70, Sec. 5.06(3))

A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period (including renewals). If the lease period began before '98, this rule applies only for the post-'97 portion of the lease period (including renewals). (Rev Proc 2007-70, Sec. 5.06(2))

Other business mileage rate rules. For 2008, the depreciation component of the mileage rate is 21¢ per mile (19¢ per mile for 2007, 17¢ per mile for 2006 and 2005, 16¢ per mile for 2004 and 2003). The depreciation component reduces the basis of the auto for gain or loss purposes. (Rev Proc 2007-70, Sec. 5.05)

Advantages of using standard mileage rate. For those taxpayers eligible to use it, the standard mileage rate offers the following advantages:

• Mileage rate users need not keep a record of actual expenses, or retain receipts where required. A record of the time, place, business purpose and number of miles traveled suffices.
• If an auto's business expenses are deducted via the mileage rate, it is not subject to the Code Sec. 280F dollar caps, or the special rules that apply if qualified business use does not exceed 50% of total use.
• The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, high-mileage model.

Disadvantages of mileage rate method. The mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.

Other applications of mileage allowance method. Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed 50.5¢ per mile for employment-connected business mileage during 2008 (48.5¢ per mile for 2007), whether the autos are owned or leased. ( Rev Proc 2007-70, Sec. 9.01 ) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos during 2008 may be valued at 50.5¢ per mile if the conditions specified in Reg. § 1.61-21(e)(1) are met.

Other mileage rules for 2008. Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2008, the standard auto cost used to compute the FAVR allowance cannot exceed $27,500 (down from $27,600 for 2007). (Rev Proc 2007-70, Sec. 8.02(6))

In addition, for 2008, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 19¢ per mile (20¢ per mile for 2007). ( Rev Proc 2007-70, Sec. 7.02) The mileage rate for driving an auto for charitable use during 2008 will remain unchanged at 14¢ per mile (a statutory rate that's not adjusted for inflation). (Rev Proc 2007-70, Sec. 7.01)