Mileage Rates for 2013

Today the IRS issued the new mileage rates for 2013. This is the amount that can be deducted per mile for various uses of your vehicle.

The new rate for business use is $0.565 per mile, up 1 cent from 2012. Of that amount, $0.23 remains the amount allocated for depreciation or basis reduction. What that means is that for every 100 miles you drive in 2013 (or 2012 for that matter) you must reduce your "basis" in the vehicle by $23. If you have enough miles, your basis might be reduced to the point that you must report the income if you sell your car.

For an example on the basis reduction, let's assume you paid $10,000 for your car. You drove this a lot for business purposes and the basis reduction came to $9,000 total over the several years you owned the car. Now you sell your car for $1,500. Think you "lost" $8,500 on the car? Guess again. You actually gained $500 on the sale and that income is taxable. Remember, you previously reduced your income by $9,000 so it is time to pay part of that back.

By the way, if you trade that car in on the purchase of a different car, that is actually considered a "1031 exchange" and you must file the appropriate forms with your tax return. That will avoid paying the tax on the $500 gain for now, but it reduces the basis on those new wheels.

The mileage rate for charity work remains at $0.14 per mile. That amount was set by Congress without allowing any authorization for adjustment due to inflation, etc. So until Congress changes it - it isn't changing.

For medical purposes or if you are moving the new rate is $0.24 per mile. That does not require basis adjustments on the vehicle.