Just before Christmas, the IRS has proved a bringer of gifts for taxpayers who drive a car for business. But the agency turned out to be a Grinch if you or are thinking about buying a Tesla electric vehicle in 2019.

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Standard mileage rate goes up in 2019

The IRS has increased the standard mileage rate for business driving during 2019 to 58 cents per mile. This is a 3.5 cent increase over the rate for 2018. Driving costs have gone up, so the rate has increased. The IRS recalculates the standard mileage rate for business each year using an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil.

To determine your deductible business mileage expenses using the standard rate, you simply multiply your business miles by the rate. For example, if you drive 10,000 business miles in 2019 you’ll have a $5,800 deduction. In contrast, if you drove 10,000 business miles in 2018, you could only deduct $5,550.

The standard rate for driving for medical or moving purposes is 20 cents per mile in 2019, up from 18 cents per mile in 2018.  But, for most people, the increase means nothing. As a result of the new tax law, very few taxpayers can deduct moving expenses. The deduction is now limited to members of the Armed Forces on active duty moving under orders to a permanent change of station.

The standard rate for driving for charitable purposes is 14 cents per mile.  The IRS is not allowed to adjust this rate.

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Tesla tax credit phased out during 2019

Meanwhile, the IRS also announced that the tax credit for buying an electric Tesla vehicle will go down in 2019. Plug-in electric vehicles such as the Tesla are eligible for a tax credit of up to $7,500. However, this credit phases out once a manufacturer produces 200,000 electric vehicles.

The phase-out starts during the second calendar quarter after 200,000 vehicles are sold. Taxpayers purchasing the vehicle during the first two calendar quarters of the phase-out period may claim a 50% credit. Those purchasing the vehicles during the third and fourth calendar quarters of the phase-out period may claim 25% credit. No credit is available for vehicles purchased after the last day of the fourth calendar quarter of the phase-out period.

The IRS has announced that Tesla has sold 200,000 vehicles by the end of the third quarter of 2018 (September 30, 2018). Thus, the credit for purchasing Tesla vehicles will begin to phase out starting on January 1, 2019. The following chart shows the phase-out amounts.

VehicleFull Credit When Purchased by 12/31/2018Reduced Credit When Purchased From 1/1/2019 Through 6/30/2019Reduced Credit When Purchased From 7/1/2019 Through 12/31/2019Tax Credit Available Starting 1/1/2020
Tesla$7,500$3,750$1,875$0

This phase-out applies to any make, model, or model year of new qualified plug-in electric vehicle sold by Tesla.

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Stephen Fishman

Stephen Fishman

Stephen Fishman is a self-employed tax expert and regular contributor to MileIQ. He has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for entrepreneurs, independent contractors, freelancers and other self-employed people. He is the author of over 20 books and hundreds of articles, and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Visit Fishman Law and Tax Files for more information on his work.
Stephen Fishman