IRS Adjusts Mileage Deductions Amid Rising Gas Prices
This week, the IRS revealed changes affecting how much taxpayers can deduct for each mile driven in business vehicles due to the ongoing rise in fuel prices. These adjustments, which are seen as a response to higher gas prices, will allow for larger deductions for business, medical, and moving expenses.
The standard business mileage deduction will rise from 72.5 cents per mile to 76 cents per mile. Meanwhile, the deductions for medical and transportation purposes will increase from 20.5 cents to 23.5 cents per mile.
Interestingly, while the White House and gas stations have voiced concerns about stubbornly high prices, there seems to be economic growth in areas where prices have been reduced.
The changes to mileage deductions will kick in this month and will be retroactively applicable from July 1, 2026. This is noteworthy as it marks the first mid-year adjustment to these rates since 2022.
The surge in gasoline prices can largely be attributed to the recent Iran conflict, which has affected oil supply routes through the Strait of Hormuz, causing noticeable increases at the pump.
As of Thursday, the national average price of gasoline stood at $3.943 per gallon, a significant rise from $3.16 a year ago, reflecting an increase of around 24.7% over the past year. However, there has been some relief recently, with prices dropping from an average of $4.044 per gallon just a month prior.
Gas prices have played a substantial role in driving inflation this year, with a reported rise of 26.7% year-on-year, according to the latest Consumer Price Index data.
In light of these circumstances, the DOJ and FTC have announced plans to tackle any illegal activities that may contribute to higher gas prices.
This increase in gas prices remains a focal point for many, especially as the CPI data showed a slight decrease in prices in June, though further drops will be necessary to balance out the substantial hikes seen earlier in the conflict. The headline CPI rose 3.5% in June, well above the Federal Reserve’s target, which complicates future interest rate cuts if inflation stays elevated.
