IRS Boosts Business Standard Mileage Rates for 2023
The IRS recently issued Notice 23-03, which contains the 2023 standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.
Last year, the IRS made a rare midyear mileage rate adjustment in June as a way to combat soaring inflation and high gas prices.
With the recent notice, the 2023 business standard mileage rate is increasing to 65.5 cents, up 3 cents from the 2022 midyear adjustment. In addition to the rate per mile driven for business use, the IRS also announced the standard mileage rate for 2023 will be:
- 22 cents per mile driven for medical or moving purposes, consistent with the increased midyear rate set for the second half of 2022.
- 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2022.
These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
For HUD assisted housing purposes, these rates are considered when calculating net income from some business such as ride-hailing and app-based delivery services. The rates also are used when calculating medical expense deductions for mileage to and from medical treatment or appointments. We’ll go over the basics of medical expense deductions and how to anticipate business income for 2023 with deductions for business use of a vehicle.
Medical Expense Deductions
If any of your households are classified as elderly or disabled, HUD permits a medical expense deduction to be used to calculate their adjusted annual income. You can include mileage to and from medical appointments and to and from regular medical treatments as part of the medical expense deduction. Remember, the mileage rate is currently 22 cents per mile based on the IRS notice.
The medical expense deduction is permitted only for households in which the head, spouse, or co-head is at least 62 years old or is a person with disabilities [HUD Handbook 4350.3, par. 5-10(D)(1)]. When calculating the medical expense deduction, the actual cost of traveling to and from treatment is used. This can be bus or taxi fare or, if driving a car, a mileage rate based on IRS rules. So, when calculating the medical expense deduction for mileage to and from medical treatments or appointments, be sure to use the new 2022 mileage rates.
Include all family members. If this classification applies to your household, you must include out-of-pocket medical expenses for all household members except live-in aides, even if the other household members are not elderly or disabled [HUD Handbook 4350.3, par. 5-10(D)(2)]. In other words, although medical expenses are permitted only for elderly or disabled households, once a household qualifies as an elderly or disabled household, the medical expenses of all household members are considered.
For example, if a household includes a 70-year-old grandfather (head), a 37-year-old daughter, and a 4-year-old grandson, the medical expenses of all three family members would be considered when calculating the medical expense deduction.
Include all unreimbursed expenses. Medical expenses include all expenses the family expects to incur during the 12 months following certification/recertification that aren’t reimbursed by an outside source, such as insurance [HUD Handbook 4350.3, par. 5-10(D)(3)].
Also, an owner may use the ongoing expenses the family paid in the 12 months preceding the certification/recertification to estimate anticipated medical expenses [HUD Handbook, par. 5-10(D)(2-4)]. Examples of anticipated medical expenses include prescription drugs, eyeglasses, unpaid doctor and hospital bills that include a payment plan, insurance premiums, Medicare Part D premiums, hearing aids, dental care, transportation/mileage to health care appointments, etc.
Deduct excess of 3 percent. In addition, elderly or disabled households may deduct medical expenses in excess of 3 percent of gross income [HUD Handbook 4350.3, par. 5-10(D)(5)]. For example, suppose the age of the head of household is 64. The spouse is 58. Their annual income is $12,000, and their total medical expenses, which include travel to and from treatment, are $1,500. First, you would calculate 3 percent of $12,000 ($360). To obtain the medical expense deduction, you would subtract 3 percent of annual income from total medical expense. Here, the allowable medical expenses would be $1,140 ($1,500 - $360).
Business Driving Expense Deductions
Some of your residents may spend time behind the wheel of their car earning money with ride-hailing or delivery apps. The drivers are self-employed and their income can be sporadic and dependent on the rates prescribed by the app. For these individuals, transportation costs are deductible as business operating expenses.
These residents have two options for deducting vehicle expenses. They can use the standard mileage rate or they can deduct their actual expenses for gas, depreciation, and other driving costs. Most people use the standard mileage rate because it is simpler and requires less recordkeeping. By using this option, one only needs to keep track of how many business miles were driven and not the actual expenses of their car, such as the amount paid for gas.
To figure out the deduction, the resident multiplies business miles driven by the applicable standard mileage rate. Then, the deduction is applied to the driver’s gross income. Most gig economy companies provide income statements showing monthly, quarterly, and annual earnings.
For example, an applicant delivers food with an app-based delivery service. She has been delivering food with the app-based service for four months. Her income certification will be effective Feb. 1 and she provides printouts from the service of her gross income with taxable business deductions. Her income, not including any mileage, is $4,200.23. The printouts also show that she has driven 1,321 miles while working for the service. To calculate her annual income projection, you would perform the following steps:
- Step 1: Calculate mileage so far. [1,321 miles x .655 = $865.26]
- Step 2: Calculate the four-month net income. [$4,200.23 - $865.26 mileage deduction = $3,334.97]
- Step 3: Annualize net income. [$3,334.97 x 3 = $ 10,004.94]
If the resident chooses the standard mileage rate, he cannot deduct actual car operating expenses such as maintenance and repairs, gasoline and its taxes, oil, insurance, and vehicle registration fees. All of these items are factored into the rate set by the IRS. And you can't deduct the cost of the car through depreciation because the car's depreciation is also factored into the standard mileage rate as are lease payments for a leased car.
The resident must use the standard mileage rate in the first year that he uses a car for business or he is forever prevented from using that method for that car. If he uses the standard mileage rate the first year, he can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that. However, this rule does not apply to leased cars. If your resident leases his car, he must use the standard mileage rate for the entire lease period if he used this option in the first year.