By Jim Droz
Most real estate agents and brokers spend a lot of time in their car, with some agents logging more than 20,000 miles a year for business purposes alone.
Fortunately, local transportation costs are deductible as business operating expenses if they are ordinary and necessary for your real estate business. It makes no difference what type of transportation you use – car, SUV, limousine, motorcycle, taxi – or whether the vehicle you use is owned or leased.
If you drive a car, SUV or van for business, you have two options for deducting your vehicle expenses: use the standard mileage rate or deduct your actual expenses for gas, depreciation and other driving costs.
Most people use the standard mileage rate because it is simpler and requires less record keeping: You need only to keep track of how many business miles you drive, not the actual expenses for your car, such as the amount you pay for gas.
If you use the standard mileage rate, there is good news: Due to the rising cost of gas, the Internal Revenue Service has increased the mileage rate for the second half of 2011. It isn’t a huge sum but worth taking advantage of nonetheless.
How the standard mileage rate works
Under this rate, you deduct a specified number of cents for every business mile you drive. The IRS sets the standard mileage rate each year. Ordinarily, there is a single standard mileage rate for the entire year. However, there are now two rates for 2011:
• 51 cents per mile for all business driving during Jan. 1- June 30.
• 51.5 cents per mile for driving during July 1- Dec. 31.
To figure out your deduction, multiply your business miles by the applicable standard mileage rate.
If you choose the standard mileage rate, you cannot deduct actual car operating expenses, such as maintenance and repairs, gasoline and its taxes, oil, insurance and vehicle registration fees. All of those items are factored into the rate set by the IRS.
The only expenses you can deduct are:
• Interest on a car loan.
• Parking fees and tolls for business trips.
• Personal property tax that you paid when you bought the vehicle, based on its value. This is often included as part of your auto registration fee.
You must use the standard mileage rate in the first year you use a car for business or you are forever foreclosed from using that method for that car. If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that, provided the requirements listed below are met.
For this reason, if you’re not sure which method you want to use, it’s a good idea to use the standard mileage rate the first year you use the car for business. This leaves all your options open for later years.