Q: What is the standard mileage rate for 2008 & 2009? [top]

A: The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 55¢ per mile for business travel after 2008. That's 3.5¢ down from the 58.5¢ allowance for business mileage in the last six months of 2008. Further, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 24¢ per mile, down 3¢ from the 27¢ per mile allowance for the last half of 2008.

Simplified deduction method. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2008-72, Sec. 5.04)

The standard mileage rate may not be used for a purchased auto if:

• It was previously depreciated using a method other than straight-line for its estimated useful life;
• A Code Sec. 179 expensing deduction was claimed for the auto;
• The taxpayer depreciated it using MACRS under Code Sec. 168; or
• The vehicle is used for hire, such as a taxicab. (Rev Proc 2008-72, Sec. 5.06)

Also, the standard mileage rate can't be used to compute the deductible expenses of five or more autos owned or leased by a taxpayer and used simultaneously (such as in fleet operations). (Rev Proc 2008-72, Sec. 5.06(1))

Rural mail carriers who receive qualified reimbursements also can't use the standard mileage rate. (Rev Proc 2008-72, Sec. 5.06(4)) A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight-line depreciation over the auto's remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 2008-72, Sec. 5.06(3))

A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period (including renewals). If the lease period began before 1998, this rule applies only for the post-1997 portion of the lease period (including renewals). (Rev Proc 2008-72, Sec. 5.06(2))

Other business mileage rate rules. For 2009 and 2008, the depreciation component of the mileage rate is 21¢ per mile (19¢ per mile for 2007, 17¢ per mile for 2006 and 2005, 16¢ per mile for 2004 and 2003). The depreciation component reduces the basis of the auto for gain or loss purposes. (Rev Proc 2008-72, Sec. 5.05)

Advantages of using standard mileage rate. For those taxpayers eligible to use it, the standard mileage rate offers the following advantages:

• Mileage rate users need not keep a record of actual expenses, or retain receipts where required. A record of the time, place, business purpose and number of miles traveled suffices.
• If an auto's business expenses are deducted via the mileage rate, it is not subject to the Code Sec. 280F dollar caps, or the special rules that apply if qualified business use does not exceed 50% of total use.
• The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, high-mileage model.

Disadvantages of mileage rate method. The mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.

Other applications of mileage allowance method. Employers who require employees to supply their own autos may reimburse them at a rate that doesn't exceed 55¢ per mile for employment-connected business mileage during 2009 (50.5¢ per mile for the first half of 2008; 58.5¢ per mile for the last half of 2008), whether the autos are owned or leased. (Rev Proc 2008-72, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos during 2009 may be valued at 55¢ per mile if the conditions specified in Reg. § 1.61-21(e)(1) are met.

Other mileage rules for 2009. Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2009, the standard auto cost used to compute the FAVR allowance cannot exceed $27,200 (down from $27,500 for 2008). (Rev Proc 2008-72, Sec. 8.02(6))

In addition, for 2009, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 24¢ per mile (19¢ per mile for the first half of 2008; 27¢ per mile for the last half of 2008). (Rev Proc 2008-72, Sec. 7.02) The mileage rate for driving an auto for charitable use during 2009 will remain unchanged at 14¢ per mile (a statutory rate that's not adjusted for inflation). (Rev Proc 2008-72, Sec. 7.01)

Source: Federal Taxes Weekly Alert (preview) 11/26/2008, Volume 54, No. 48

Q: How long do I have to roll over a retirement distribution? [top]

A: You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution). The IRS may waive the 60 day requirement where failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. To obtain the waiver in most cases, a request for a letter ruling must be made which include the applicable user fee. Refer to Internal Revenue Bulletin 2006-01 to get the Internal Revenue Procedure for requesting a letter ruling. A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans. For information on the Direct Rollover Option, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).

Q: How is the amount of the Hope or Lifetime Learning Credit determined? [top]

A: The amount of the credit is determined by the amount you pay for qualified tuition and related expenses paid for each eligible student and the amount of your Modified Adjusted Gross Income (MAGI).

Q: What expenses qualify for the education credits? [top]

A: Expenses that qualify are tuition and fees required for enrollment or attendance at any college, vocational school, or other post-secondary educational institution eligible to participate in the student aid programs administered by the Department of Education.

Qualified expenses do not include books, room and board, student activities, athletics (unless the course is part of the student's degree program), insurance, equipment, transportation, or other similar personal, living, or family expenses. The cost of books and equipment are generally not qualified expenses because eligible educational institutions usually do not require that fees for such books or equipment be paid to the institution as a condition of the student's enrollment or attendance at the institution.

Q: Are expenses to attend private high schools eligible for the education credits? [top]

A: No. Expenses paid to attend high school do not qualify for the education credits because a high school is not an eligible educational institution. An eligible educational institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately-owned profit making) post-secondary institutions.

References:

• Publication 970, Tax Benefits for Education
• Tax Topic 605, Education Credits
• Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits)