In a Notice and accompanying news release, IRS has provided updated information to taxpayers and employers about changes from the Tax Cuts and Jobs Act (TCJA, P.L. 115-97, 12/22/2017) affecting vehicle and unreimbursed employee expenses.
Background. On Dec. 14, 2017, shortly before the enactment of the TCJA, IRS released optional standard mileage rates for 2018, as well as the amounts used in calculating reductions to basis for depreciation taken under the business standard rate and the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) plan. (Notice 2018-3; for more details see “Business and other standard mileage rates increase for 2018” (12/21/2017))
New Notice reflects TCJA changes. The TCJA made many tax law changes, including those affecting move-related vehicle expenses, unreimbursed employee expenses, and vehicle expensing. Notice 2018-42 modifies Notice 2018-3 to reflect these changes, as outlined below.
Specifically, the TCJA generally suspended the deduction for moving expenses for tax years beginning after 2017 and before 2026, with an exception for certain members of the Armed Forces. During the suspension, no deduction is allowed for use of an automobile as part of a move using the 18¢ mileage rate listed in Notice 2018-3. (Notice 2018-42)
The TCJA also suspended, for tax years beginning after 2017 and before 2026, all miscellaneous itemized deductions that are subject to the 2%-of-AGI (adjusted gross income) floor, including unreimbursed employee travel expenses. Thus, the business standard mileage rate listed in pre-TCJA Notice 2018-3 (54.5¢) can’t be used to claim an itemized deduction for unreimbursed employee travel expenses in tax years during the suspension. However, Notice 2018-42 clarifies that deductions for expenses that are deductible in determining AGI, which include unreimbursed employee travel expenses that are claimed by certain taxpayers (e.g., reservists and certain state or local government officials), may still be claimed at the 54.5¢ 2018 business standard mileage rate.
Finally, the TCJA increased the depreciation limitations for passenger automobiles placed in service after 2017, for purposes of computing the allowance under a FAVR plan. The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after 2017 (up from $27,300 for passenger automobiles and $31,000 for trucks and vans, as provided in Notice 2018-3).
References: For the optional mileage allowance, see FTC 2d/FIN ¶ L-1903; United States Tax Reporter ¶ 1624.157.