Apply IRS Mileage Rate When Deducting Medical and Business Driving Expenses

On Dec. 17, 2021, the IRS issued Notice 22-03, which contains the 2022 standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. The agency said it rates the standard mileage for business use based on an annual study of the fixed and variable costs of operation. According to the IRS, standard mileage rates are up slightly from 2021 in two categories.

As of Jan. 1, the standard mileage rates for the use of a car are 18 cents per mile driven for medical or moving purposes (up 2 cents from the rate for 2021) and 58.5 cents per mile for business use (up 2.5 cents from the rate for 2021).

For HUD assisted housing purposes, these rates are considered when calculating net income from some businesses such as ride-hailing and app-based delivery services. The rates also are used when calculating medical expense deductions for mileage to and from medical treatment or appointments.

We’ll go over the basis of medical expense deductions and how to anticipate business income for 2022 with deductions for business use of a vehicle.

Medical Expense Deductions

If any of your households are classified as elderly or disabled, HUD permits a medical expense deduction to be used to calculate their adjusted annual income. You can include mileage to and from medical appointments and to and from regular medical treatments as part of the medical expense deduction.

The medical expense deduction is permitted only for households in which the head, spouse, or co-head is at least 62 years old or is a person with disabilities [HUD Handbook 4350.3, par. 5-10(D)(1)]. When calculating the medical expense deduction, the actual cost of traveling to and from treatment is used. This can be bus or taxi fare or, if driving a car, a mileage rate based on IRS rules. So, when calculating the medical expense deduction for mileage to and from medical treatments or appointments, be sure to use the new 2022 mileage rates.

Include all family members. If this classification applies to your household, you must include out-of-pocket medical expenses for all household members except live-in aides, even if the other household members are not elderly or disabled [HUD Handbook 4350.3, par. 5-10(D)(2)].

For example, if a household includes a 70-year-old grandfather (head), a 37-year-old daughter, and a 4-year-old grandson, the medical expenses of all three family members would be considered when calculating the medical expense deduction.

Include all unreimbursed expenses. Medical expenses include all expenses the family expects to incur during the 12 months following certification/recertification that aren’t reimbursed by an outside source, such as insurance [HUD Handbook 4350.3, par. 5-10(D)(3)].

Deduct excess of 3 percent. In addition, elderly or disabled households may deduct medical expenses in excess of 3 percent of gross income [HUD Handbook 4350.3, par. 5-10(D)(5)].

For example, suppose the age of the head of household is 64. The spouse is 58. Their annual income is $12,000, and their total medical expenses, which include travel to and from treatment, are $1,500. First, you would calculate 3 percent of $12,000 ($360). To obtain the medical expense deduction, you would subtract 3 percent of annual income from total medical expense. Here, the allowable medical expenses would be $1,140 ($1,500 - $360).

Business Driving Expense Deductions

Some of your residents may spend time behind the wheel of their car earning money with ride-hailing or food delivery apps. The drivers are self-employed and their income can be sporadic and dependent on the rates prescribed by the app. For these individuals, transportation costs are deductible as business operating expenses.

These residents have two options for deducting vehicle expenses. They can use the standard mileage rate or they can deduct their actual expenses for gas, depreciation, and other driving costs. Most people use the standard mileage rate because it is simpler and requires less recordkeeping. By using this option, residents need to keep track only of how many business miles are driven and not the actual expenses of their car, such as the amount paid for gas.

To figure out the deduction, the resident multiplies business miles driven by the applicable standard mileage rate. Then, the deduction is applied to the driver’s gross income.

Example: An applicant delivers food with an app-based delivery service. She has been delivering food with the app-based service for four months. Her income certification will be effective Feb. 1, and she provides printouts from the service of her gross income with taxable business deductions. Her income, not including any mileage, is $4,237.59. The printouts also show that she has driven 1,321 miles while working for the service.     To calculate her annual income projection, you would perform the following steps:

• Step 1: Calculate mileage so far [1,321 miles x .585 = $772.79].
• Step 2: Calculate the four-month net income [$4,237.59 - $772.79 mileage deduction = $3,464.80].
• Step 3: Annualize net income [$3,464.80 x 3 = $ 10,394.40].

If the resident chooses the standard mileage rate, he can’t deduct actual car operating expenses such as maintenance and repairs, gasoline and its taxes, oil, insurance, and vehicle registration fees. All of these items are factored into the rate set by the IRS. And you can't deduct the cost of the car through depreciation because the car's depreciation is also factored into the standard mileage rate, as are lease payments for a leased car.

The resident must use the standard mileage rate in the first year that he uses a car for business or he is forever prevented from using that method for that car. If he uses the standard mileage rate the first year, he can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that. However, this rule doesn’t apply to leased cars. If your resident leases his car, he must use the standard mileage rate for the entire lease period if he used this option in the first year.