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Congress Green-Lights Some Alternative Vehicle Credits
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Article Highlights: Hybrid Credit (Expired) Four-Wheeled Plug-In Electric Drive Vehicle Credit Qualified Fuel Cell Motor Vehicle Credit Two-Wheeled Plug-In Electric Vehicle (Motorcycle) Credit Alternative Fuel Vehicle Refueling Property Credit Refund Opportunity On December 20, 2019, President Trump signed into law the Appropriations Act of 2020, which includes a number of tax law changes, including extending certain tax provisions that expired after 2017 or were about to expire, a number of retirement and IRA plan modifications, and other changes that will impact a large portion of U.S. taxpayers as a whole. This article is one of a series of articles dealing with those changes and how they may affect you. To encourage U.S. taxpayers to move away from gasoline-powered motor vehicles, over the years, Congress has provided various tax credits for purchasing electric or alternative fuel vehicles. These credits generally come with an expiration date or a sales limitation. For example, from 2006 through 2010, a credit was available to taxpayers who were purchasing a hybrid vehicle – this was when hybrids such as the Toyota Prius were beginning to take off in the U.S. auto market. Since then, the tax credit that has drawn the most attention is the 4-Wheeled Plug-In Electric Drive Vehicle Credit, created by Congress in 2009. Four-Wheeled Plug-In Electric Drive Vehicle Credit – This nonrefundable credit is worth up to $7,500 for the purchase of new electric vehicles and has been a stimulus for car companies to manufacture “green” vehicles and an incentive for consumers to purchase such vehicles. Although there is no specific date in the future when this credit will expire, the number of vehicles each manufacturer can sell that can qualify for the credit is limited. That limit is enforced by phasing out the credit by manufacturer once the manufacturer sells its 200,000th electric vehicle. As a result, Tesla vehicles purchased after 2019 won’t qualify for a credit, and qualifying vehicles made by Cadillac and Chevrolet and purchased in the first quarter of 2020 are eligible for just a partial credit, or for no credit if bought after March 31, 2020. The following table shows the current credit phaseouts: VEHICLES BEGINNING PHASEOUT IN 2019 Date Acquired >>> MANUFACTURER Before 2019 Jan.–Mar. 2019 Apr.–June 2019 July–Sept. 2019 Oct.–Dec. 2019 Jan.–Mar. 2020 After Mar. 2020 Tesla* $7,500 $3,750 $3,750 $1,875 $1,875 $0 $0 Chevrolet* $7,500 $7,500 $3,750 $3,750 $1,875 $1,875 $0 Cadillac* $7,500 $7,500 $3,750 $3,750 $1,875 $1,875 $0 *All qualifying models As Congress developed the tax provisions included in the Appropriations Act of 2020, passed late in 2019, there was some hope that the 200,000th-vehicle limit would be increased so that future sales of vehicles from the manufacturers already affected by the phaseout would be eligible for the credit. This didn’t happen. However, Congress did extend through 2020, the following lesser known credits that had originally expired at the end of 2017:
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
