The IRS increased the optional standard mileage rate used to calculate the deductible costs of operating a vehicle for business to 70 cents per mile driven, up 3 cents from 2024. The increased rate is effective as of Jan. 1, 2025 (Notice 2025-5).

The notice, released Thursday, sets the 2025 standard mileage rates at 21 cents per mile driven for medical purposes and at 21 cents per mile for moving purposes for qualified active-duty members of the armed forces, which is unchanged from 2024.

The rate per mile driven in service of charitable organizations is set by statute and will remain at 14 cents per mile.

The rates apply to electric and hybrid-electric automobiles, as well as gasoline- and diesel-powered vehicles.

The portion of the business standard mileage rate that is treated as depreciation for purposes of calculating reductions to basis will be 33 cents per mile for 2025.

Taxpayers can calculate the actual costs of using their vehicle rather than using the standard mileage rates.

Notice 2025-5 also provides the maximum standard automobile cost under a fixed-and-variable-rate (FAVR) plan of $61,200 for automobiles (including trucks and vans), down $800 from 2024. Under a FAVR plan, a standard amount is deemed substantiated for an employer's reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.

For purposes of the fleet-average valuation rule in Regs. Sec. 1.61-21(d)(5)(v) and the vehicle cents-per-mile rule under Regs. Sec. 1.61-21(e), $61,200 is also the maximum fair market value of automobiles (including trucks and vans) first made available in calendar year 2025.

— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.