Mileage or actual costs? The 2026 vehicle deduction, with the mid-year rate change
US Written for United States taxpayers
There is something unusual about 2026 that will catch people out at filing time: the standard mileage rate changed in the middle of the year.
Most years have one rate. This year has two.
The 2026 rates
| Period | Business rate |
|---|---|
| January 1 – June 30, 2026 | 72.5 cents per mile |
| July 1 – December 31, 2026 | 76 cents per mile |
The IRS set 72.5 cents in January, up 2.5 cents from 2025, then raised it again to 76 cents effective July 1 in response to rising fuel prices. Mid-year adjustments are rare — the last one was in 2022 — which is exactly why so many people will apply a single rate to the whole year and get it wrong.
What this means for your log: you cannot total your 2026 business miles and multiply once. You need the split. Miles driven in the first half are worth 72.5 cents; miles from July onwards are worth 76 cents.
If your mileage app records dates — and any of them do — this is a filter, not a reconstruction. Do it now rather than in April.
An example. 8,000 business miles, evenly spread:
- 4,000 miles × $0.725 = $2,900
- 4,000 miles × $0.76 = $3,040
- Total deduction: $5,940
Applying 72.5 cents to all 8,000 would give $5,800 — understating your deduction by $140. Applying 76 cents to all of it would give $6,080, overstating it by the same. Neither is catastrophic, but one of them is wrong in the direction the IRS cares about.
What the standard rate actually covers
The standard mileage rate is meant to stand in for the whole cost of running the vehicle: fuel, insurance, registration, repairs, maintenance, tyres, and depreciation.
That last one matters. Depreciation is built into the rate, which means you cannot claim the standard rate and separately depreciate the vehicle. It is one or the other.
A few things sit outside the rate and can be claimed on top under either method:
- Parking fees for business trips
- Tolls on business journeys
- The business share of car loan interest, if you are self-employed
- Personal property tax on the vehicle, business portion
Parking at your own regular workplace is commuting, and is not deductible.
The actual expense method
The alternative is to track everything you spend on the vehicle across the year, work out what percentage of your driving was business, and claim that share.
Deductible costs include fuel, oil, insurance, registration, repairs, maintenance, tyres, lease payments, garage rent, and depreciation.
You still need a mileage log, because the business-use percentage comes from business miles ÷ total miles. The idea that actual expenses lets you skip the log is wrong, and it is the reason people who choose this method often end up with a weaker position than those who did not.
Which one wins
Mileage generally wins for cheap, efficient, high-mileage vehicles. Actual expenses generally wins for expensive, thirsty, low-mileage vehicles.
The intuition: the standard rate pays you a fixed amount per mile regardless of what the car costs. Drive a lot in something cheap and the rate pays you more than the car actually costs you. Drive a little in something expensive and it does not come close.
Two illustrations at 8,000 business miles out of 12,000 total — a 67% business share:
An older sedan. Total running costs $6,200 for the year. Actual method: 67% × $6,200 = $4,154. Mileage method: $5,940. Mileage wins by around $1,800.
A new SUV with a loan. Total running costs including depreciation $16,500. Actual method: 67% × $16,500 = $11,055. Mileage method: still $5,940. Actual wins by around $5,100.
The gap runs both ways and it is large. It is worth actually calculating rather than defaulting.
The rule that locks you in
This is the part people find out too late.
If you want to use the standard mileage rate for a vehicle, you must use it in the first year that vehicle is in service. Use actual expenses in year one and you are locked into actual expenses for that vehicle for as long as you own it.
The reverse is not true. Start with the standard rate and you may switch to actual expenses in a later year — though if you do, you must use straight-line depreciation from then on rather than an accelerated method.
The practical advice for a new vehicle: start with the standard mileage rate unless you are confident actual costs will be higher, because it preserves your ability to change your mind. Starting with actual expenses closes that door permanently.
One more restriction: if you use five or more vehicles simultaneously in your business, you cannot use the standard rate for any of them.
What counts as a business mile
Narrower than most people assume, and the boundary is worth understanding because it can convert a large amount of driving from non-deductible to deductible.
Commuting is never deductible. Driving from home to a regular place of work is personal, however far it is and however much you resent it.
But if your home is your principal place of business, the calculus changes entirely. Trips from home to clients, suppliers, the bank, the post office or a job site are business miles from the moment you leave the door — because you are travelling between one business location and another, not commuting to work.
This is one of the strongest arguments for establishing a qualifying home office. It is not only worth the home office deduction itself; it reclassifies a large share of your driving.
Also deductible: travel between two business locations, trips to buy supplies, driving to a client meeting or a conference, and trips to your accountant on business matters.
The log
Whichever method you pick, you need a contemporaneous record: date, destination, business purpose, miles.
“Contemporaneous” means written down at the time, or close to it. An app running in the background is the easy answer and costs a few dollars a month. Reconstructing a year from calendar entries in April is both miserable and much weaker if anyone ever asks.
Given the mid-year rate change, 2026 is a year where a dated log is doing real work. If you have been keeping notes rather than using an app, go and split them at June 30 now, while you still remember which trips were which.
Then work out what you owe
Vehicle costs reduce your net profit, and net profit is what both self-employment tax and income tax are calculated from — so a deduction here is worth roughly your income tax rate plus about 14%. Once you know your real profit, the calculator below shows what you owe on it.