When it pays to switch to the actual mileage method

January 22, 2021
Frederick W. Daily, J.D, LL. M (tax)
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Jason is a freelance programmer and tech consultant working from an office in his condominium. In 2014 Jason drove his old Toyota Carolla 2000 miles visiting clients. Jason used the standard mileage method come tax time. His standard mileage deduction was $1,120.

In 2015 Jason landed a big long term contract and replaced the Carolla with a $60,000 Porsche Boxter. He drove about the same number of business miles as in 2014. Come tax time, Jason, using tax prep software entered his car expense info, including gas, maintenance and depreciation expense.

Jason’s Turbotax program calculated his new vehicle deduction both ways. Using the Standard Mileage method Jason got $1250 as a deduction. But under the Actual Expense method, the tax program showed that Jason gets a tax deduction of almost $10,000!

Question: Can Jason legally switch from the Mileage method to the Actual Expense method in year 2?

Answer: Good news for Jason. The tax code allows switching methods from year to year – with two limitations

  1. If you use the actual expense method in year 1, you can’t switch to the mileage method in later years, with the same vehicle.
  2. If you use the mileage method in year 1, you can switch to the actual method, if you use the straight-line depreciation deduction for the cost of the vehicle. No so-called “accelerated deduction” can be used, but for the business-used life of the vehicle, the total deduction will be the same.

If this sounds a little complicated, no worries. A tax preparation program like Turbotax will walk you through it, or use a professional tax preparer.

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Frederick W. Daily, J.D, LL. M (tax)
Originally Published
May 1, 2016