The Internal Revenue Service (IRS) has announced significant changes to the way Americans will calculate driving-related tax deductions starting in 2026. This update affects the standard mileage rate for business travel, while also altering rates related to medical and moving expenses.
Changes to Mileage Rates for 2026
From January 1, 2026, taxpayers using their vehicles for business purposes can deduct 72.5 cents per mile, marking a 2.5-cent increase from the 2025 rate. Conversely, the mileage rate for medical travel and qualifying moving expenses is set to decrease to 20.5 cents per mile, a reduction of 0.5 cents. The charitable mileage rate remains stable at 14 cents per mile, a figure established by law.
The IRS emphasized that these updated rates reflect ongoing studies into the fixed and variable costs of operating a vehicle, as well as adjustments for inflation. The rates apply uniformly to all types of vehicles, including gasoline, diesel, hybrid, and fully electric models.
Taxpayers have the option to utilize the IRS mileage rates or opt to calculate actual vehicle expenses. However, specific rules apply. For individuals who own a vehicle and choose the standard mileage rate for business use, this election must occur in the first year the vehicle is placed in service. For leased vehicles, the standard mileage method needs to be used throughout the entire lease period, including any renewals.
Tax Implications and New Car Loan Interest Deduction
The IRS also reminded taxpayers that most unreimbursed employee travel expenses are no longer deductible as miscellaneous itemized deductions. Exceptions are made for particular groups, such as eligible educators, certain state and local officials, specific performing artists, and active members of the Armed Forces and intelligence community. Only active-duty military personnel and select intelligence members can claim deductions for moving expenses related to a permanent change of station.
In conjunction with these mileage updates, new federal guidance has been released regarding a notable tax change: the “No Tax on Car Loan Interest” provision, part of the One, Big, Beautiful Bill. Proposed regulations from the Treasury and IRS clarify how taxpayers can deduct interest paid on qualifying vehicle loans for new, made-in-America cars purchased for personal use after December 31, 2024.
This new deduction is available to both taxpayers who take the standard deduction and those who itemize. The guidance specifies which vehicles qualify based on U.S. final assembly, the calculation of eligible loan interest, and the eligibility criteria for claiming the deduction, which is capped at $10,000 per year. Additionally, lenders will face new reporting requirements, including filing information returns detailing interest received and loan specifics to help taxpayers accurately claim the deduction.
Transition rules apply for interest payments made during 2025. The Treasury and IRS are currently accepting public comments on these proposed regulations until February 2, 2026, through Regulations.gov. For further details on the mileage rates and vehicle-related tax provisions, individuals can visit IRS.gov.
