The IRS updates its optional standard mileages rates at least once a year. On December 2, 2005, the IRS announced that the optional standard mileage rate for 2006 is 44.5 cents per business mile.

Assuming you qualify to use 44.5 cents, you have a choice:

Use 44.5 cents to deduct your business miles, or

Use actual expenses.

The 44.5 cent business mileage rate includes 17 cents for depreciation and 27.5 cents for operating and fixed costs other than parking and tolls, interest, and state and local personal property taxes, which you deduct in addition to the 44.5 cents .1

Thus, if you incurred $900 for parking and tolls, interest, and personal property taxes and drove 10,000 miles for the year, you would deduct $5,350 [(44.5 cents x 10,000) plus $900)].

Secret Cash for You

The 17 cents for depreciation might hold the key to finding some secret cash. Most people who use the IRS standard mileage rate assume that once they use the IRS rate, they’re done, and they have nothing else to consider on that vehicle. This is incorrect.

Because depreciation is separately recognized in the IRS standard mileage rate, the standard-mileage rate vehicle has basis just like any other depreciable asset. The sale of a depreciable business asset requires recognition of gain or loss in your tax return.

Example. You buy a $25,000 vehicle,

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