The Internal Revenue Service (IRS) has announced significant changes to how millions of Americans will calculate driving-related tax deductions in 2026. The adjustments include an increase in the standard mileage rate for business travel and a decrease in rates tied to medical and moving expenses.
In 2026, taxpayers who use their vehicles for business purposes can deduct 72.5 cents per mile, reflecting an increase of 2.5 cents from the 2025 rate. 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 unchanged at 14 cents per mile, a figure established by statute.
The IRS explained that these updated rates are based on annual studies of fixed and variable vehicle operating costs, along with adjustments for inflation. Importantly, these rates apply to all types of vehicles, 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 this choice. For instance, taxpayers who own a vehicle and opt for the standard mileage rate for business use must make this election in the first year the vehicle is placed in service. For leased vehicles, the standard mileage method must be consistently applied throughout the entire lease period, including any renewals.
In addition, the IRS reminded taxpayers that most unreimbursed employee travel expenses are no longer deductible as miscellaneous itemized deductions. Certain exceptions apply, notably for eligible educators, some state and local officials, specific performing artists, and members of the Armed Forces and intelligence community. Only active-duty military members and select intelligence personnel are permitted to deduct moving expenses linked to a permanent change of station.
New Car Loan Tax Break Introduced
The mileage rate update coincides with new federal guidance concerning a significant tax change: the “No Tax on Car Loan Interest” provision enacted under the One, Big, Beautiful Bill. Treasury and IRS officials have released proposed regulations that clarify how taxpayers can deduct interest paid on qualifying vehicle loans taken out after December 31, 2024. This provision applies to loans used to purchase new, made-in-America vehicles for personal use.
Unlike many tax deductions, this new car loan interest benefit is available to taxpayers who take the standard deduction as well as those who itemize their deductions. The guidance details which vehicles qualify based on U.S. final assembly and explains how eligible loan interest is calculated. The deduction is capped at $10,000 per year.
Additionally, the proposal introduces new reporting obligations for lenders, who will be required to file information returns detailing interest received and specifics of the loans. This will enable taxpayers to accurately claim their deductions. Transition rules also apply to interest paid during the year 2025.
The Treasury and IRS are currently accepting public comments on these proposed regulations until February 2, 2026, which can be submitted through Regulations.gov. For further details on the mileage rates and vehicle-related tax provisions, taxpayers can visit IRS.gov.
As these changes take effect, they will significantly impact how Americans approach vehicle-related tax deductions, providing new opportunities for savings while also adapting to shifting economic conditions.
