The Internal Revenue Service has issued Notice 2026-10, establishing the optional standard mileage rates for computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes effective January 1, 2026. This guidance also updates the basis reduction amounts for depreciation and sets the maximum standard automobile cost for fixed and variable rate (FAVR) plans.

Purpose and Background of the Notice

The issuance of Notice 2026-10 serves to update the optional standard mileage rates based on an annual study conducted by an independent contractor for the IRS. This study analyzes "the fixed and variable costs of operating an automobile to determine the standard mileage rates for business, medical, and moving use". Conversely, the rate for charitable use is not determined by this study but is "set by § 170(i)".

Practitioners should note that while Notice 2026-10 provides the specific rates, the underlying rules for substantiation remain tied to prior revenue procedures. The IRS states that "Taxpayers using the standard mileage rates must comply with Rev. Proc. 2019-46, except to the extent the law has been specifically changed by Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA)". Despite the convenience of the standard rate, the Service reminds professionals that "a taxpayer is not required to use the substantiation methods described in Rev. Proc. 2019-46, but instead may substantiate using actual allowable expense amounts, if the taxpayer maintains adequate records or other sufficient evidence".

2026 Optional Standard Mileage Rates

The IRS announced the following rates for the calendar year 2026:

Business Use: 72.5 cents per mile. This represents an increase of 2.5 cents from the 2025 rate.
Medical and Moving: 20.5 cents per mile. This reflects a decrease of 0.5 cents from the previous year.
Charitable Use: 14 cents per mile. This rate remains unchanged from 2025.

It is important to advise clients that the optional standard mileage rate for business is based on an analysis of both fixed and variable costs, whereas the rate for medical and moving purposes "is based on only the variable costs from the annual study".

Impact of Legislation on Deductibility

A critical component of Notice 2026-10 is the IRS’s analysis of how recent legislation—specifically the OBBBA—impacts the ability of taxpayers to utilize these rates. The IRS notes that "§ 70110 of the OBBBA made permanent the disallowance for all miscellaneous itemized deductions that are subject to the two-percent of adjusted gross income floor under § 67, including unreimbursed employee travel expenses".

Consequently, "the business standard mileage rate provided in this notice cannot be used to claim an itemized deduction for unreimbursed employee travel expenses, except for certain educator expenses". However, the notice clarifies that deductions determining adjusted gross income remain viable. The IRS specifies that "members of a reserve component of the Armed Forces of the United States (Armed Forces), state or local government officials paid in whole or in part on a fee basis, and certain performing artists are entitled to deduct unreimbursed employee travel expenses as an adjustment to total income on line 12 of Schedule 1 of Form 1040". These specific taxpayers "may continue to use the business standard mileage rate".

Regarding educators, the notice provides a nuanced application of the law: "eligible educators are also entitled to deduct certain unreimbursed employee travel expenses as an adjustment to total income... but alternatively they may be entitled to an itemized deduction on Schedule A of Form 1040 for 2026".

Expansion of Moving Expense Deductions

The deduction for moving expenses remains suspended for most taxpayers. The IRS reiterates that "Section 70113(a) of the OBBBA made permanent the disallowance for the deduction for moving expenses, except to the extent § 217(g) applies". Historically, this exception applied primarily to active-duty military. However, under the new guidance, eligibility has expanded.

The IRS analysis states: "Section 70113(b) of the OBBBA added a new provision that included certain members of the intelligence community within the scope of § 217(g)". Therefore, for 2026, the moving mileage rate of 20.5 cents applies to "members of the Armed Forces on active duty who move pursuant to a military order... and members of the intelligence community who move after December 31, 2025, pursuant to a change of assignment which requires relocation".

Basis Reduction and Depreciation

For tax professionals maintaining depreciation schedules for client vehicles, Notice 2026-10 updates the portion of the business standard mileage rate that is treated as depreciation. This amount is critical for calculating the reduction to basis when a vehicle is sold.

The notice dictates: "For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is... 35 cents per mile for 2026". This is an increase from the 33 cents per mile allocable to depreciation in 2025.

Maximum Automobile Cost for Special Valuation Rules

The notice also updates the dollar limitations required for employers using Fixed and Variable Rate (FAVR) plans or specific valuation rules for employer-provided vehicles. The IRS states that "for purposes of computing the allowance under a FAVR plan, the standard automobile cost may not exceed $61,700 for automobiles (including trucks and vans)".

Similarly, regarding the valuation of personal use of employer-provided vehicles, "the maximum FMV of automobiles (including trucks and vans) first made available to employees in calendar year 2026 is $61,700". This limitation applies specifically when employers elect to use "the fleet-average valuation rule in § 1.61-21(d)(5)(v) and the vehicle cents-per-mile valuation rule in § 1.61-21(e)".

Effective Date

The rates and rules outlined in Notice 2026-10 are effective for "deductible transportation expenses paid or incurred on or after January 1, 2026". Furthermore, for employer-provided automobiles, the maximum FMV limits apply to vehicles "first made available to employees for personal use on or after January 1, 2026".

Prepared with assistance from NotebookLM.