Contents
Future Developments . . . . . . . . . . . . 2
What's New . . . . . . . . . . . . . . . . . . 2
Reminder . . . . . . . . . . . . . . . . . . . . 2
Introduction . . . . . . . . . . . . . . . . . . 2
Chapter 1. Travel . . . . . . . . . . . . . . 3
Traveling Away From Home . . . . . . . 3
Tax Home . . . . . . . . . . . . . . 3
Tax Home Different From
Family Home . . . . . . . . . . 3
Temporary Assignment or Job . . . . . 4
What Travel Expenses Are
Deductible? . . . . . . . . . . . . . . 4
Meals . . . . . . . . . . . . . . . . 5
Travel in the United States . . . . 6
Travel Outside the United
States . . . . . . . . . . . . . . 7
Luxury Water Travel . . . . . . . . 8
Conventions . . . . . . . . . . . . 9
Chapter 2. Entertainment . . . . . . . . 10
Directly Related Test . . . . . . . . . . 10
Associated Test . . . . . . . . . . . . 10
50% Limit . . . . . . . . . . . . . . . . 11
Exceptions to the 50% Limit . . . 11
What Entertainment Expenses
Are Deductible? . . . . . . . . . . 12
What Entertainment Expenses
Aren’t Deductible? . . . . . . . . . 13
Chapter 3. Gifts . . . . . . . . . . . . . . 14
Chapter 4. Transportation . . . . . . . . 14
Car Expenses . . . . . . . . . . . . . . 15
Standard Mileage Rate . . . . . 15
Actual Car Expenses . . . . . . . 16
Leasing a Car . . . . . . . . . . . 23
Disposition of a Car . . . . . . . . . . 24
Chapter 5. Recordkeeping . . . . . . . . 25
How To Prove Expenses . . . . . . . 25
What Are Adequate
Records? . . . . . . . . . . . 25
What if I Have Incomplete
Records? . . . . . . . . . . . 25
Separating and Combining
Expenses . . . . . . . . . . . 26
How Long To Keep
Records and Receipts . . . . 27
Examples of Records . . . . . . 27
Chapter 6. How To Report . . . . . . . . 27
Where To Report . . . . . . . . . . . . 27
Vehicle Provided by Your
Employer . . . . . . . . . . . 29
Reimbursements . . . . . . . . . . . . 29
Accountable Plans . . . . . . . . 30
Nonaccountable Plans . . . . . . 32
Rules for Independent
Contractors and Clients . . . 33
How To Use Per Diem Rate
Tables . . . . . . . . . . . . . . . . 33
The Two Substantiation
Methods . . . . . . . . . . . . 33
Transition Rules . . . . . . . . . 33
Department
of the
Treasury
Internal
Revenue
Service
Publication 463
Cat. No. 11081L
Travel,
Entertainment,
Gift, and Car
Expenses
For use in preparing
2017 Returns
Get forms and other information faster and easier at:
• IRS.gov (English)
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Jan 16, 2018
Completing Forms 2106 and
2106-EZ . . . . . . . . . . . . . . . 34
Special Rules . . . . . . . . . . . 35
How To Get Tax Help . . . . . . . . . . . 36
Appendices . . . . . . . . . . . . . . . . . 38
Index . . . . . . . . . . . . . . . . . . . . . 49
Future Developments
For the latest information about developments
related to Pub. 463, such as legislation enacted
after it was published, go to IRS.gov/Pub463.
What's New
Standard mileage rate. For 2017, the stand-
ard mileage rate for the cost of operating your
car for business use is 53.5 cents (0.535) per
mile. Car expenses and use of the standard
mileage rate are explained in chapter 4.
Depreciation limits on cars, trucks, and
vans. For 2017, the first-year limit on the total
depreciation deduction for cars remains at
$11,160 ($3,160 if you elect not to claim the
special depreciation allowance). For trucks and
vans, the first-year limit is $11,560 ($3,560 if
you elect not to claim the special depreciation
allowance). Depreciation limits are explained in-
chapter 4. Also, for vehicles purchased and
placed in service after September 27, 2017, you
may be able to take a special depreciation al-
lowance of 100% and you may apply the de-
duction to used vehicles.
Section 179 deduction. For 2017, the section
179 deduction limit on qualifying property pur-
chases (including cars, trucks, and vans) is a
total of $510,000, and the limit on those purcha-
ses at which the deduction begins to be phased
out is $2,030,000. Section 179 deduction is ex-
plained in chapter 4.
Special depreciation allowance. For 2017,
the special (“bonus”) depreciation allowance on
qualified property (including cars, trucks, and
vans) remains at 50%. Special depreciation al-
lowance is explained in chapter 4.
Reminder
Photographs of missing children. The IRS is
a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Pho-
tographs of missing children selected by the
Center may appear in this publication on pages
that would otherwise be blank. You can help
bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
Per diem rates. Current and prior per diem
rates may be found on the U.S. General Serv-
ices Administration (GSA) website at GSA.gov/
Perdiem.
Introduction
You may be able to deduct the ordinary and
necessary business-related expenses you have
for:
Travel,
Entertainment,
Gifts, or
Transportation.
An ordinary expense is one that is common and
accepted in your trade or business. A neces-
sary expense is one that is helpful and appropri-
ate for your business. An expense doesn’t have
to be required to be considered necessary.
This publication explains:
What expenses are deductible,
How to report them on your return,
What records you need to prove your ex-
penses, and
How to treat any expense reimbursements
you may receive.
Who should use this publication. You
should read this publication if you are an em-
ployee or a sole proprietor who has busi-
ness-related travel, entertainment, gift, or trans-
portation expenses.
Users of employer-provided vehicles. If
an employer-provided vehicle was available for
your use, you received a fringe benefit. Gener-
ally, your employer must include the value of
the use or availability of the vehicle in your in-
come. However, there are exceptions if the use
of the vehicle qualifies as a working condition
fringe benefit (such as the use of a qualified
nonpersonal use vehicle).
A working condition fringe benefit is any
property or service provided to you by your em-
ployer for which you could deduct the cost as
an employee business expense if you had paid
for it.
A qualified nonpersonal use vehicle is one
that isn’t likely to be used more than minimally
for personal purposes because of its design.
See Qualified nonpersonal use vehicles under
Actual Car Expenses in chapter 4.
For information on how to report your car ex-
penses that your employer didn’t provide or re-
imburse you for (such as when you pay for gas
and maintenance for a car your employer pro-
vides), see Vehicle Provided by Your Employer
in chapter 6.
Who doesn’t need to use this publication.
Partnerships, corporations, trusts, and employ-
ers who reimburse their employees for business
expenses should refer to the instructions for
their required tax forms and chapter 11 of Pub.
535, Business Expenses, for information on de-
ducting travel, meals, and entertainment expen-
ses.
If you are an employee, you won’t need to
read this publication if all of the following are
true.
You fully accounted to your employer for
your work-related expenses.
You received full reimbursement for your
expenses.
Your employer required you to return any
excess reimbursement and you did so.
There is no amount shown with a code L in
box 12 of your Form W-2, Wage and Tax
Statement.
If you meet all of these conditions, there is no
need to show the expenses or the reimburse-
ments on your return. If you would like more in-
formation on reimbursements and accounting to
your employer, see chapter 6.
If you meet these conditions and your
employer included reimbursements on
your Form W-2 in error, ask your em-
ployer for a corrected Form W-2.
Volunteers. If you perform services as a
volunteer worker for a qualified charity, you may
be able to deduct some of your costs as a chari-
table contribution. See Out-of-Pocket Expenses
in Giving Services in Pub. 526, Charitable Con-
tributions, for information on the expenses you
can deduct.
Comments and suggestions. We welcome
your comments about this publication and your
suggestions for future editions.
You can send us comments through
IRS.gov/FormComments. Or you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Although we can’t respond individually to
each comment received, we do appreciate your
feedback and will consider your comments as
we revise our tax forms, instructions, and publi-
cations.
Ordering forms and publications. Visit
IRS.gov/FormsPubs to download forms and
publications. Otherwise, you can go to IRS.gov/
OrderForms to order current and prior-year
forms and instructions. Your order should arrive
within 10 business days.
Tax questions. If you have a tax question
not answered by this publication, check
IRS.gov and How To Get Tax Help at the end of
this publication.
Useful Items
You may want to see:
Publication
Business Expenses
How To Depreciate Property
Form (and Instructions)
Itemized
Deductions
Profit or Loss
From Business
Net Profit
From Business
Profit or Loss
From Farming
Employee Business Expenses
Unreimbursed Employee
Business ExpensesTIP
Schedule A (Form 1040)
Schedule C (Form 1040)
Schedule C-EZ (Form 1040)
Schedule F (Form 1040)
2106
2106-EZ
Page 2 Publication 463 (2017)
Depreciation and Amortization
See How To Get Tax Help for information about
getting these publications and forms.
1.
Travel
If you temporarily travel away from your tax
home, you can use this chapter to determine if
you have deductible travel expenses.
This chapter discusses:
Traveling away from home,
Temporary assignment or job, and
What travel expenses are deductible.
It also discusses the standard meal allowance,
rules for travel inside and outside the United
States, luxury water travel, and deductible con-
vention expenses.
Travel expenses defined. For tax purposes,
travel expenses are the ordinary and necessary
expenses of traveling away from home for your
business, profession, or job.
An ordinary expense is one that is common
and accepted in your trade or business. A nec-
essary expense is one that is helpful and appro-
priate for your business. An expense doesn’t
have to be required to be considered neces-
sary.
You will find examples of deductible travel
expenses in Table 1-1.
Traveling Away From
Home
You are traveling away from home if:
Your duties require you to be away from
the general area of your tax home (defined
later) substantially longer than an ordinary
day's work, and
You need to sleep or rest to meet the de-
mands of your work while away from
home.
This rest requirement isn’t satisfied by merely
napping in your car. You don’t have to be away
from your tax home for a whole day or from
dusk to dawn as long as your relief from duty is
long enough to get necessary sleep or rest.
Example 1. You are a railroad conductor.
You leave your home terminal on a regularly
scheduled round-trip run between two cities
and return home 16 hours later. During the run,
you have 6 hours off at your turnaround point
where you eat two meals and rent a hotel room
to get necessary sleep before starting the return
trip. You are considered to be away from home.
Example 2. You are a truck driver. You
leave your terminal and return to it later the
same day. You get an hour off at your turn-
around point to eat. Because you aren’t off to
get necessary sleep and the brief time off isn’t
an adequate rest period, you aren’t traveling
away from home.
4562 Members of the Armed Forces. If you are a
member of the U.S. Armed Forces on a perma-
nent duty assignment overseas, you aren’t trav-
eling away from home. You can’t deduct your
expenses for meals and lodging. You can’t de-
duct these expenses even if you have to main-
tain a home in the United States for your family
members who aren’t allowed to accompany you
overseas. If you are transferred from one per-
manent duty station to another, you may have
deductible moving expenses, which are ex-
plained in Pub. 521, Moving Expenses.
A naval officer assigned to permanent duty
aboard a ship that has regular eating and living
facilities has a tax home (explained next)
aboard the ship for travel expense purposes.
Tax Home
To determine whether you are traveling away
from home, you must first determine the loca-
tion of your tax home.
Generally, your tax home is your regular
place of business or post of duty, regardless of
where you maintain your family home. It in-
cludes the entire city or general area in which
your business or work is located.
If you have more than one regular place of
business, your tax home is your main place of
business. See Main place of business or work,
later.
If you don’t have a regular or a main place of
business because of the nature of your work,
then your tax home may be the place where you
regularly live. See No main place of business or
work, later.
If you don’t have a regular or main place of
business or post of duty and there is no place
where you regularly live, you are considered an
itinerant (a transient) and your tax home is
wherever you work. As an itinerant, you can’t
claim a travel expense deduction because you
are never considered to be traveling away from
home.
Main place of business or work. If you have
more than one place of work, consider the fol-
lowing when determining which one is your
main place of business or work.
The total time you ordinarily spend in each
place.
The level of your business activity in each
place.
Whether your income from each place is
significant or insignificant.
Example. You live in Cincinnati where you
have a seasonal job for 8 months each year and
earn $40,000. You work the other 4 months in
Miami, also at a seasonal job, and earn
$15,000. Cincinnati is your main place of work
because you spend most of your time there and
earn most of your income there.
No main place of business or work. You
may have a tax home even if you don’t have a
regular or main place of work. Your tax home
may be the home where you regularly live.
Factors used to determine tax home. If
you don’t have a regular or main place of busi-
ness or work, use the following three factors to
determine where your tax home is.
1. You perform part of your business in the
area of your main home and use that
home for lodging while doing business in
the area.
2. You have living expenses at your main
home that you duplicate because your
business requires you to be away from
that home.
3. You haven’t abandoned the area in which
both your historical place of lodging and
your claimed main home are located; you
have a member or members of your family
living at your main home; or you often use
that home for lodging.
If you satisfy all three factors, your tax home
is the home where you regularly live. If you sat-
isfy only two factors, you may have a tax home
depending on all the facts and circumstances. If
you satisfy only one factor, you are an itinerant;
your tax home is wherever you work and you
can’t deduct travel expenses.
Example 1. You are single and live in Bos-
ton in an apartment you rent. You have worked
for your employer in Boston for a number of
years. Your employer enrolls you in a 12-month
executive training program. You don’t expect to
return to work in Boston after you complete your
training.
During your training, you don’t do any work
in Boston. Instead, you receive classroom and
on-the-job training throughout the United
States. You keep your apartment in Boston and
return to it frequently. You use your apartment
to conduct your personal business. You also
keep up your community contacts in Boston.
When you complete your training, you are
transferred to Los Angeles.
You don’t satisfy factor (1) because you
didn’t work in Boston. You satisfy factor (2) be-
cause you had duplicate living expenses. You
also satisfy factor (3) because you didn’t aban-
don your apartment in Boston as your main
home, you kept your community contacts, and
you frequently returned to live in your apart-
ment. Therefore, you have a tax home in Bos-
ton.
Example 2. You are an outside salesper-
son with a sales territory covering several
states. Your employer's main office is in New-
ark, but you don’t conduct any business there.
Your work assignments are temporary, and you
have no way of knowing where your future as-
signments will be located. You have a room in
your married sister's house in Dayton. You stay
there for one or two weekends a year, but you
do no work in the area. You don’t pay your sis-
ter for the use of the room.
You don’t satisfy any of the three factors lis-
ted earlier. You are an itinerant and have no tax
home.
Tax Home Different From
Family Home
If you (and your family) don’t live at your tax
home (defined earlier), you can’t deduct the
cost of traveling between your tax home and
your family home. You also can’t deduct the
cost of meals and lodging while at your tax
home. See Example 1, later.
Chapter 1 Travel Page 3
If you are working temporarily in the same
city where you and your family live, you may be
considered as traveling away from home. See
Example 2, later.
Example 1. You are a truck driver and you
and your family live in Tucson. You are em-
ployed by a trucking firm that has its terminal in
Phoenix. At the end of your long runs, you re-
turn to your home terminal in Phoenix and
spend one night there before returning home.
You can’t deduct any expenses you have for
meals and lodging in Phoenix or the cost of
traveling from Phoenix to Tucson. This is be-
cause Phoenix is your tax home.
Example 2. Your family home is in Pitts-
burgh, where you work 12 weeks a year. The
rest of the year you work for the same employer
in Baltimore. In Baltimore, you eat in restaurants
and sleep in a rooming house. Your salary is
the same whether you are in Pittsburgh or Balti-
more.
Because you spend most of your working
time and earn most of your salary in Baltimore,
that city is your tax home. You can’t deduct any
expenses you have for meals and lodging
there. However, when you return to work in
Pittsburgh, you are away from your tax home
even though you stay at your family home. You
can deduct the cost of your round trip between
Baltimore and Pittsburgh. You can also deduct
your part of your family's living expenses for
meals and lodging while you are living and
working in Pittsburgh.
Temporary
Assignment or Job
You may regularly work at your tax home and
also work at another location. It may not be
practical to return to your tax home from this
other location at the end of each work day.
Temporary assignment vs. indefinite as-
signment. If your assignment or job away from
your main place of work is temporary, your tax
home doesn’t change. You are considered to
be away from home for the whole period you
are away from your main place of work. You
can deduct your travel expenses if they other-
wise qualify for deduction. Generally, a tempo-
rary assignment in a single location is one that
is realistically expected to last (and does in fact
last) for 1 year or less.
However, if your assignment or job is indefi-
nite, the location of the assignment or job be-
comes your new tax home and you can’t deduct
your travel expenses while there. An assign-
ment or job in a single location is considered in-
definite if it is realistically expected to last for
more than 1 year, whether or not it actually lasts
for more than 1 year.
If your assignment is indefinite, you must in-
clude in your income any amounts you receive
from your employer for living expenses, even if
they are called travel allowances and you ac-
count to your employer for them. You may be
able to deduct the cost of relocating to your new
tax home as a moving expense. See Pub. 521
for more information.
Exception for federal crime investigations
or prosecutions. If you are a federal em-
ployee participating in a federal crime investiga-
tion or prosecution, you aren’t subject to the
1-year rule. This means you may be able to de-
duct travel expenses even if you are away from
your tax home for more than 1 year provided
you meet the other requirements for deductibil-
ity.
For you to qualify, the Attorney General (or
his or her designee) must certify that you are
traveling:
For the federal government;
In a temporary duty status; and
To investigate, prosecute, or provide sup-
port services for the investigation or prose-
cution of a federal crime.
Determining temporary or indefinite. You
must determine whether your assignment is
temporary or indefinite when you start work. If
you expect an assignment or job to last for 1
year or less, it is temporary unless there are
facts and circumstances that indicate other-
wise. An assignment or job that is initially tem-
porary may become indefinite due to changed
circumstances. A series of assignments to the
same location, all for short periods but that to-
gether cover a long period, may be considered
an indefinite assignment.
The following examples illustrate whether an
assignment or job is temporary or indefinite.
Example 1. You are a construction worker.
You live and regularly work in Los Angeles. You
are a member of a trade union in Los Angeles
that helps you get work in the Los Angeles area.
Your tax home is Los Angeles. Because of a
shortage of work, you took a job on a construc-
tion project in Fresno. Your job was scheduled
to end in 8 months. The job actually lasted 10
months.
You realistically expected the job in Fresno
to last 8 months. The job actually did last less
than 1 year. The job is temporary and your tax
home is still in Los Angeles.
Example 2. The facts are the same as in
Example 1, except that you realistically expec-
ted the work in Fresno to last 18 months. The
job actually was completed in 10 months.
Your job in Fresno is indefinite because you
realistically expected the work to last longer
than 1 year, even though it actually lasted less
than 1 year. You can’t deduct any travel expen-
ses you had in Fresno because Fresno became
your tax home.
Example 3. The facts are the same as in
Example 1, except that you realistically expec-
ted the work in Fresno to last 9 months. After 8
months, however, you were asked to remain for
7 more months (for a total actual stay of 15
months).
Initially, you realistically expected the job in
Fresno to last for only 9 months. However, due
to changed circumstances occurring after 8
months, it was no longer realistic for you to ex-
pect that the job in Fresno would last for 1 year
or less. You can deduct only your travel expen-
ses for the first 8 months. You can’t deduct any
travel expenses you had after that time because
Fresno became your tax home when the job be-
came indefinite.
Going home on days off. If you go back to
your tax home from a temporary assignment on
your days off, you aren’t considered away from
home while you are in your hometown. You
can’t deduct the cost of your meals and lodging
there. However, you can deduct your travel ex-
penses, including meals and lodging, while
traveling between your temporary place of work
and your tax home. You can claim these expen-
ses up to the amount it would have cost you to
stay at your temporary place of work.
If you keep your hotel room during your visit
home, you can deduct the cost of your hotel
room. In addition, you can deduct your expen-
ses of returning home up to the amount you
would have spent for meals had you stayed at
your temporary place of work.
Probationary work period. If you take a job
that requires you to move, with the understand-
ing that you will keep the job if your work is sat-
isfactory during a probationary period, the job is
indefinite. You can’t deduct any of your expen-
ses for meals and lodging during the probation-
ary period.
What Travel Expenses
Are Deductible?
Once you have determined that you are travel-
ing away from your tax home, you can deter-
mine what travel expenses are deductible.
You can deduct ordinary and necessary ex-
penses you have when you travel away from
home on business. The type of expense you
can deduct depends on the facts and your cir-
cumstances.
Table 1-1 summarizes travel expenses you
may be able to deduct. You may have other de-
ductible travel expenses that aren’t covered
there, depending on the facts and your circum-
stances.
When you travel away from home on
business, you must keep records of all
the expenses you have and any advan-
ces you receive from your employer. You can
use a log, diary, notebook, or any other written
record to keep track of your expenses. The
types of expenses you need to record, along
with supporting documentation, are described
in Table 5-1 (see chapter 5).
Separating costs. If you have one expense
that includes the costs of meals, entertainment,
and other services (such as lodging or transpor-
tation), you must allocate that expense between
the cost of meals and entertainment and the
cost of other services. You must have a reason-
able basis for making this allocation. For exam-
ple, you must allocate your expenses if a hotel
includes one or more meals in its room charge.
Travel expenses for another individual. If a
spouse, dependent, or other individual goes
with you (or your employee) on a business trip
or to a business convention, you generally can’t
deduct his or her travel expenses.
Employee. You can deduct the travel ex-
penses of someone who goes with you if that
person:RECORDS
Page 4 Chapter 1 Travel
1. Is your employee,
2. Has a bona fide business purpose for the
travel, and
3. Would otherwise be allowed to deduct the
travel expenses.
Business associate. If a business asso-
ciate travels with you and meets the conditions
in (2) and (3) above, you can deduct the travel
expenses you have for that person. A business
associate is someone with whom you could rea-
sonably expect to actively conduct business. A
business associate can be a current or pro-
spective (likely to become) customer, client,
supplier, employee, agent, partner, or profes-
sional advisor.
Bona fide business purpose. A bona fide
business purpose exists if you can prove a real
business purpose for the individual's presence.
Incidental services, such as typing notes or as-
sisting in entertaining customers, aren’t enough
to make the expenses deductible.
Example. Jerry drives to Chicago on busi-
ness and takes his wife, Linda, with him. Linda
isn’t Jerry's employee. Linda occasionally types
notes, performs similar services, and accompa-
nies Jerry to luncheons and dinners. The per-
formance of these services doesn’t establish
that her presence on the trip is necessary to the
conduct of Jerry's business. Her expenses
aren’t deductible.
Jerry pays $199 a day for a double room. A
single room costs $149 a day. He can deduct
the total cost of driving his car to and from Chi-
cago, but only $149 a day for his hotel room. If
both Jerry and Linda use public transportation,
Jerry can deduct only his fare.
Meals
You can deduct the cost of meals in either of
the following situations.
It is necessary for you to stop for substan-
tial sleep or rest to properly perform your
duties while traveling away from home on
business.
The meal is business-related entertain-
ment.
Business-related entertainment is discussed in
chapter 2. The following discussion deals only
with meals that aren’t business-related enter-
tainment.
Lavish or extravagant. You can’t deduct ex-
penses for meals that are lavish or extravagant.
An expense isn’t considered lavish or extrava-
gant if it is reasonable based on the facts and
circumstances. Expenses won’t be disallowed
merely because they are more than a fixed dol-
lar amount or take place at deluxe restaurants,
hotels, nightclubs, or resorts.
50% limit on meals. You can figure your
meals expense using either of the following
methods.
Actual cost.
The standard meal allowance.
Both of these methods are explained below.
But, regardless of the method you use, you
generally can deduct only 50% of the unreim-
bursed cost of your meals.
If you are reimbursed for the cost of your
meals, how you apply the 50% limit depends on
whether your employer's reimbursement plan
was accountable or nonaccountable. If you
aren’t reimbursed, the 50% limit applies
whether the unreimbursed meal expense is for
business travel or business entertainment.
Chapter 2 discusses the 50% limit in more de-
tail, and chapter 6 discusses accountable and
nonaccountable plans.
Actual Cost
You can use the actual cost of your meals to fig-
ure the amount of your expense before reim-
bursement and application of the 50% deduc-
tion limit. If you use this method, you must keep
records of your actual cost.
Standard Meal Allowance
Generally, you can use the “standard meal al-
lowance” method as an alternative to the actual
cost method. It allows you to use a set amount
for your daily meals and incidental expenses
(M&IE), instead of keeping records of your ac-
tual costs. The set amount varies depending on
where and when you travel. In this publication,
“standard meal allowance” refers to the federal
rate for M&IE, discussed later under Amount of
standard meal allowance. If you use the stand-
ard meal allowance, you still must keep records
to prove the time, place, and business purpose
of your travel. See the recordkeeping rules for
travel in chapter 5.
Incidental expenses. The term “incidental ex-
penses” means fees and tips given to porters,
baggage carriers, hotel staff, and staff on ships.
Incidental expenses don’t include expenses
for laundry, cleaning and pressing of clothing,
lodging taxes, costs of telegrams or telephone
calls, transportation between places of lodging
or business and places where meals are taken,
or the mailing cost of filing travel vouchers and
paying employer-sponsored charge card bill-
ings.
Incidental-expenses-only method. You can
use an optional method (instead of actual cost)
for deducting incidental expenses only. The
amount of the deduction is $5 a day. You can
use this method only if you didn’t pay or incur
any meal expenses. You can’t use this method
on any day that you use the standard meal al-
lowance. This method is subject to the proration
rules for partial days. See Travel for days you
depart and return, later in this chapter.
Note. The incidental-expenses-only
method isn’t subject to the 50% limit discussed
below.
Table 1-1. Travel Expenses You Can Deduct
This chart summarizes expenses you can deduct when you travel away from
home for business purposes.
IF you have
expenses for... THEN you can deduct the cost of...
transportation travel by airplane, train, bus, or car between your home and your
business destination. If you were provided with a free ticket or you are
riding free as a result of a frequent traveler or similar program, your
cost is zero. If you travel by ship, see Luxury Water Travel and Cruise
Ships, under Conventions, earlier, for additional rules and limits.
taxi, commuter bus,
and airport
limousine
fares for these and other types of transportation that take you between:
The airport or station and your hotel; and
The hotel and the work location of your customers or clients, your
business meeting place, or your temporary work location.
baggage and
shipping
sending baggage and sample or display material between your
regular and temporary work locations.
car operating and maintaining your car when traveling away from home on
business. You can deduct actual expenses or the standard mileage
rate, as well as business-related tolls and parking. If you rent a car
while away from home on business, you can deduct only the
business-use portion of the expenses.
lodging and meals your lodging and meals if your business trip is overnight or long
enough that you need to stop for sleep or rest to properly perform your
duties. Meals include amounts spent for food, beverages, taxes, and
related tips. See Meals, later, for additional rules and limits.
cleaning dry cleaning and laundry.
telephone business calls while on your business trip. This includes business
communication by fax machine or other communication devices.
tips tips you pay for any expenses in this chart.
other other similar ordinary and necessary expenses related to your
business travel. These expenses might include transportation to or
from a business meal, public stenographer's fees, computer rental
fees, and operating and maintaining a house trailer.
Chapter 1 Travel Page 5
Federal employees should refer to the
Federal Travel Regulations at GSA.gov
for changes affecting claims for reim-
bursement.
50% limit may apply. If you use the standard
meal allowance method for meal expenses and
you aren’t reimbursed or you are reimbursed
under a nonaccountable plan, you can gener-
ally deduct only 50% of the standard meal al-
lowance. If you are reimbursed under an ac-
countable plan and you are deducting amounts
that are more than your reimbursements, you
can deduct only 50% of the excess amount.
The 50% limit is discussed in more detail in
chapter 2, and accountable and nonaccounta-
ble plans are discussed in chapter 6.
There is no optional standard lodging
amount similar to the standard meal al-
lowance. Your allowable lodging ex-
pense deduction is your actual cost.
Who can use the standard meal allowance.
You can use the standard meal allowance
whether you are an employee or self-employed,
and whether or not you are reimbursed for your
traveling expenses.
Use of the standard meal allowance for
other travel. You can use the standard meal
allowance to figure your meal expenses when
you travel in connection with investment and
other income-producing property. You can also
use it to figure your meal expenses when you
travel for qualifying educational purposes. You
can’t use the standard meal allowance to figure
the cost of your meals when you travel for medi-
cal or charitable purposes.
Amount of standard meal allowance. The
standard meal allowance is the federal M&IE
rate. For travel in 2017, the rate for most small
localities in the United States is $51 a day.
Most major cities and many other localities
in the United States are designated as
high-cost areas, qualifying for higher standard
meal allowances.
You can find this information (organ-
ized by state) at GSA.gov/Perdiem. En-
ter a zip code or select a city and state
for the per diem rates for the current fiscal year.
Per diem rates for prior fiscal years are availa-
ble by using the drop-down menu.
If you travel to more than one location in one
day, use the rate in effect for the area where
you stop for sleep or rest. If you work in the
transportation industry, however, see Special
rate for transportation workers, later.
Federal government's fiscal year. Per
diem rates are listed by the federal govern-
ment's fiscal year which runs from October 1 to
September 30. You can choose to use the rates
from the 2017 fiscal year per diem tables or the
rates from the 2018 fiscal year tables, but you
must consistently use the same tables for all
travel you are reporting on your income tax re-
turn for the year. See Transition Rules, later.
Standard meal allowance for areas out-
side the continental United States. The
standard meal allowance rates above don’tCAUTION
!CAUTION
!
apply to travel in Alaska, Hawaii, or any other
location outside the continental United States.
The Department of Defense establishes per
diem rates for Alaska, Hawaii, Puerto Rico,
American Samoa, Guam, Midway, the Northern
Mariana Islands, the U.S. Virgin Islands, Wake
Island, and other non-foreign areas outside the
continental United States. The Department of
State establishes per diem rates for all other
foreign areas.
You can access per diem rates for
non-foreign areas outside the continen-
tal United States at
www.Defensetravel.dod.mil/site/
perdiemCalc.cfm. You can access all other for-
eign per diem rates at State.gov/travel/. Click on
“Travel Per Diem Allowances for Foreign Areas”
under “Foreign Per Diem Rates” to obtain the
latest foreign per diem rates.
Special rate for transportation workers.
You can use a special standard meal allowance
if you work in the transportation industry. You
are in the transportation industry if your work:
Directly involves moving people or goods
by airplane, barge, bus, ship, train, or
truck; and
Regularly requires you to travel away from
home and, during any single trip, usually
involves travel to areas eligible for different
standard meal allowance rates.
If this applies, you can claim a standard meal al-
lowance of $63 a day ($68 for travel outside the
continental United States) for travel in 2017.
Using the special rate for transportation
workers eliminates the need for you to deter-
mine the standard meal allowance for every
area where you stop for sleep or rest. If you
choose to use the special rate for any trip, you
must use the special rate (and not use the regu-
lar standard meal allowance rates) for all trips
you take that year.
Travel for days you depart and return. For
both the day you depart for and the day you re-
turn from a business trip, you must prorate the
standard meal allowance (figure a reduced
amount for each day). You can do so by one of
two methods.
Method 1: You can claim 3 4 of the standard
meal allowance.
Method 2: You can prorate using any
method that you consistently apply and
that is in accordance with reasonable busi-
ness practice.
Example. Jen is employed in New Orleans
as a convention planner. In March, her em-
ployer sent her on a 3-day trip to Washington,
DC, to attend a planning seminar. She left her
home in New Orleans at 10 a.m. on Wednesday
and arrived in Washington, DC, at 5:30 p.m. Af-
ter spending 2 nights there, she flew back to
New Orleans on Friday and arrived back home
at 8 p.m. Jen's employer gave her a flat amount
to cover her expenses and included it with her
wages.
Under Method 1, Jen can claim 21 2 days of
the standard meal allowance for Washington,
DC: 3 4 of the daily rate for Wednesday and Fri-
day (the days she departed and returned), and
the full daily rate for Thursday.
Under Method 2, Jen could also use any
method that she applies consistently and that is
in accordance with reasonable business prac-
tice. For example, she could claim 3 days of the
standard meal allowance even though a federal
employee would have to use Method 1 and be
limited to only 21 2 days.
Travel in the United States
The following discussion applies to travel in the
United States. For this purpose, the United
States includes the 50 states and the District of
Columbia. The treatment of your travel expen-
ses depends on how much of your trip was
business related and on how much of your trip
occurred within the United States. See Part of
Trip Outside the United States, later.
Trip Primarily for Business
You can deduct all of your travel expenses if
your trip was entirely business related. If your
trip was primarily for business and, while at your
business destination, you extended your stay
for a vacation, made a personal side trip, or had
other personal activities, you can deduct only
your business-related travel expenses. These
expenses include the travel costs of getting to
and from your business destination and any
business-related expenses at your business
destination.
Example. You work in Atlanta and take a
business trip to New Orleans in May. Your busi-
ness travel totals 900 miles round trip. On your
way home, you stop in Mobile to visit your pa-
rents. You spend $2,165 for the 9 days you are
away from home for travel, meals, lodging, and
other travel expenses. If you hadn’t stopped in
Mobile, you would have been gone only 6 days,
and your total cost would have been $1,633.50.
You can deduct $1,633.50 for your trip, includ-
ing the cost of round-trip transportation to and
from New Orleans. The deduction for your
meals is subject to the 50% limit on meals men-
tioned earlier.
Trip Primarily for
Personal Reasons
If your trip was primarily for personal reasons,
such as a vacation, the entire cost of the trip is a
nondeductible personal expense. However, you
can deduct any expenses you have while at
your destination that are directly related to your
business.
A trip to a resort or on a cruise ship may be a
vacation even if the promoter advertises that it
is primarily for business. The scheduling of inci-
dental business activities during a trip, such as
viewing videotapes or attending lectures deal-
ing with general subjects, won’t change what is
really a vacation into a business trip.
Part of Trip Outside
the United States
If part of your trip is outside the United States,
use the rules described later in this chapter un-
der Travel Outside the United States for that
part of the trip. For the part of your trip that is
Page 6 Chapter 1 Travel
inside the United States, use the rules for travel
in the United States. Travel outside the United
States doesn’t include travel from one point in
the United States to another point in the United
States. The following discussion can help you
determine whether your trip was entirely within
the United States.
Public transportation. If you travel by public
transportation, any place in the United States
where that vehicle makes a scheduled stop is a
point in the United States. Once the vehicle
leaves the last scheduled stop in the United
States on its way to a point outside the United
States, you apply the rules under Travel Out-
side the United States, later.
Example. You fly from New York to Puerto
Rico with a scheduled stop in Miami. Puerto
Rico isn’t considered part of the United States
for purposes of travel. You return to New York
nonstop. The flight from New York to Miami is in
the United States, so only the flight from Miami
to Puerto Rico is outside the United States. Be-
cause there are no scheduled stops between
Puerto Rico and New York, all of the return trip
is outside the United States.
Private car. Travel by private car in the United
States is travel between points in the United
States, even though you are on your way to a
destination outside the United States.
Example. You travel by car from Denver to
Mexico City and return. Your travel from Denver
to the border and from the border back to Den-
ver is travel in the United States, and the rules
in this section apply. The rules below under
Travel Outside the United States apply to your
trip from the border to Mexico City and back to
the border.
Travel Outside
the United States
If any part of your business travel is outside the
United States, some of your deductions for the
cost of getting to and from your destination may
be limited. For this purpose, the United States
includes the 50 states and the District of Colum-
bia.
How much of your travel expenses you can
deduct depends in part upon how much of your
trip outside the United States was business re-
lated.
Travel Entirely for Business or
Considered Entirely for Business
You can deduct all your travel expenses of get-
ting to and from your business destination if
your trip is entirely for business or considered
entirely for business.
Travel entirely for business. If you travel out-
side the United States and you spend the entire
time on business activities, you can deduct all
of your travel expenses.
Travel considered entirely for business.
Even if you didn’t spend your entire time on
business activities, your trip is considered en-
tirely for business if you meet at least one of the
following four exceptions.
Exception 1—No substantial control.
Your trip is considered entirely for business if
you didn’t have substantial control over arrang-
ing the trip. The fact that you control the timing
of your trip doesn’t, by itself, mean that you
have substantial control over arranging your
trip.
You don’t have substantial control over your
trip if you:
Are an employee who was reimbursed or
paid a travel expense allowance, and
Aren’t related to your employer, or
Aren’t a managing executive.
“Related to your employer” is defined later in
chapter 6 under Per Diem and Car Allowances.
A “managing executive” is an employee who
has the authority and responsibility, without be-
ing subject to the veto of another, to decide on
the need for the business travel.
A self-employed person generally has sub-
stantial control over arranging business trips.
Exception 2—Outside United States no
more than a week. Your trip is considered en-
tirely for business if you were outside the United
States for a week or less, combining business
and nonbusiness activities. One week means 7
consecutive days. In counting the days, don’t
count the day you leave the United States, but
do count the day you return to the United
States.
Example. You traveled to Brussels primar-
ily for business. You left Denver on Tuesday
and flew to New York. On Wednesday, you flew
from New York to Brussels, arriving the next
morning. On Thursday and Friday, you had
business discussions, and from Saturday until
Tuesday, you were sightseeing. You flew back
to New York, arriving Wednesday afternoon. On
Thursday, you flew back to Denver.
Although you were away from your home in
Denver for more than a week, you weren’t out-
side the United States for more than a week.
This is because the day you depart doesn’t
count as a day outside the United States.
You can deduct your cost of the round-trip
flight between Denver and Brussels. You can
also deduct the cost of your stay in Brussels for
Thursday and Friday while you conducted busi-
ness. However, you can’t deduct the cost of
your stay in Brussels from Saturday through
Tuesday because those days were spent on
nonbusiness activities.
Exception 3—Less than 25% of time on
personal activities. Your trip is considered
entirely for business if:
You were outside the United States for
more than a week, and
You spent less than 25% of the total time
you were outside the United States on
nonbusiness activities.
For this purpose, count both the day your trip
began and the day it ended.
Example. You flew from Seattle to Tokyo,
where you spent 14 days on business and 5
days on personal matters. You then flew back
to Seattle. You spent 1 day flying in each direc-
tion.
Because only 5 21 (less than 25%) of your to-
tal time abroad was for nonbusiness activities,
you can deduct as travel expenses what it
would have cost you to make the trip if you
hadn’t engaged in any nonbusiness activity.
The amount you can deduct is the cost of the
round-trip plane fare and 16 days of meals
(subject to the 50% limit), lodging, and other re-
lated expenses.
Exception 4—Vacation not a major con-
sideration. Your trip is considered entirely for
business if you can establish that a personal va-
cation wasn’t a major consideration, even if you
have substantial control over arranging the trip.
Travel Primarily for Business
If you travel outside the United States primarily
for business but spend some of your time on
other activities, you generally can’t deduct all of
your travel expenses. You can only deduct the
business portion of your cost of getting to and
from your destination. You must allocate the
costs between your business and other activi-
ties to determine your deductible amount. See
Travel allocation rules, later.
You don’t have to allocate your travel
expenses if you meet one of the four
exceptions listed earlier under Travel
considered entirely for business. In those ca-
ses, you can deduct the total cost of getting to
and from your destination.
Travel allocation rules. If your trip outside the
United States was primarily for business, you
must allocate your travel time on a day-to-day
basis between business days and nonbusiness
days. The days you depart from and return to
the United States are both counted as days out-
side the United States.
To figure the deductible amount of your
round-trip travel expenses, use the following
fraction. The numerator (top number) is the total
number of business days outside the United
States. The denominator (bottom number) is
the total number of business and nonbusiness
days of travel.
Counting business days. Your business
days include transportation days, days your
presence was required, days you spent on busi-
ness, and certain weekends and holidays.
Transportation day. Count as a business
day any day you spend traveling to or from a
business destination. However, if because of a
nonbusiness activity you don’t travel by a direct
route, your business days are the days it would
take you to travel a reasonably direct route to
your business destination. Extra days for side
trips or nonbusiness activities can’t be counted
as business days.
Presence required. Count as a business
day any day your presence is required at a par-
ticular place for a specific business purpose.
Count it as a business day even if you spend
most of the day on nonbusiness activities.
Day spent on business. If your principal
activity during working hours is the pursuit of
your trade or business, count the day as a busi-
ness day. Also, count as a business day anyTIP
Chapter 1 Travel Page 7
day you are prevented from working because of
circumstances beyond your control.
Certain weekends and holidays. Count
weekends, holidays, and other necessary
standby days as business days if they fall be-
tween business days. But if they follow your
business meetings or activity and you remain at
your business destination for nonbusiness or
personal reasons, don’t count them as business
days.
Example 1. Your tax home is New York
City. You travel to Quebec, where you have a
business appointment on Friday. You have an-
other appointment on the following Monday.
Because your presence was required on both
Friday and Monday, they are business days.
Because the weekend is between business
days, Saturday and Sunday are counted as
business days. This is true even though you use
the weekend for sightseeing, visiting friends, or
other nonbusiness activity.
Example 2. If, in Example 1, you had no
business in Quebec after Friday, but stayed un-
til Monday before starting home, Saturday and
Sunday would be nonbusiness days.
Nonbusiness activity on the way to or from
your business destination. If you stopped for
a vacation or other nonbusiness activity either
on the way from the United States to your busi-
ness destination, or on the way back to the Uni-
ted States from your business destination, you
must allocate part of your travel expenses to the
nonbusiness activity.
The part you must allocate is the amount it
would have cost you to travel between the point
where travel outside the United States begins
and your nonbusiness destination and a return
to the point where travel outside the United
States ends.
You determine the nonbusiness portion of
that expense by multiplying it by a fraction. The
numerator (top number) of the fraction is the
number of nonbusiness days during your travel
outside the United States and the denominator
(bottom number) is the total number of days you
spend outside the United States.
Example. You live in New York. On May 4,
you flew to Paris to attend a business confer-
ence that began on May 5. The conference
ended at noon on May 14. That evening you
flew to Dublin where you visited with friends un-
til the afternoon of May 21, when you flew di-
rectly home to New York. The primary purpose
for the trip was to attend the conference.
If you hadn’t stopped in Dublin, you would
have arrived home the evening of May 14. You
don’t meet any of the exceptions that would al-
low you to consider your travel entirely for busi-
ness. May 4 through May 14 (11 days) are busi-
ness days and May 15 through May 21 (7 days)
are nonbusiness days.
You can deduct the cost of your meals (sub-
ject to the 50% limit), lodging, and other busi-
ness-related travel expenses while in Paris.
You can’t deduct your expenses while in
Dublin. You also can’t deduct 7 18 of what it
would have cost you to travel round trip be-
tween New York and Dublin.
You paid $750 to fly from New York to Paris,
$400 to fly from Paris to Dublin, and $700 to fly
from Dublin back to New York. Round-trip air-
fare from New York to Dublin would have been
$1,250.
You figure the deductible part of your air
travel expenses by subtracting 7 18 of the
round-trip fare and other expenses you would
have had in traveling directly between New
York and Dublin ($1,250 × 7 18 = $486) from your
total expenses in traveling from New York to
Paris to Dublin and back to New York ($750 +
$400 + $700 = $1,850).
Your deductible air travel expense is $1,364
($1,850 − $486).
Nonbusiness activity at, near, or beyond
business destination. If you had a vacation or
other nonbusiness activity at, near, or beyond
your business destination, you must allocate
part of your travel expenses to the nonbusiness
activity.
The part you must allocate is the amount it
would have cost you to travel between the point
where travel outside the United States begins
and your business destination and a return to
the point where travel outside the United States
ends.
You determine the nonbusiness portion of
that expense by multiplying it by a fraction. The
numerator (top number) of the fraction is the
number of nonbusiness days during your travel
outside the United States and the denominator
(bottom number) is the total number of days you
spend outside the United States.
None of your travel expenses for nonbusi-
ness activities at, near, or beyond your busi-
ness destination are deductible.
Example. Assume that the dates are the
same as in the previous example but that in-
stead of going to Dublin for your vacation, you
fly to Venice, Italy, for a vacation.
You can’t deduct any part of the cost of your
trip from Paris to Venice and return to Paris. In
addition, you can’t deduct 7 18 of the airfare and
other expenses from New York to Paris and
back to New York.
You can deduct 11 18 of the round-trip plane
fare and other travel expenses from New York
to Paris, plus your meals (subject to the 50%
limit), lodging, and any other business expen-
ses you had in Paris. (Assume these expenses
total $4,939.) If the round-trip plane fare and
other travel-related expenses (such as food
during the trip) are $1,750, you can deduct
travel costs of $1,069 (11 18 × $1,750), plus the
full $4,939 for the expenses you had in Paris.
Other methods. You can use another method
of counting business days if you establish that it
more clearly reflects the time spent on other
than business activities outside the United
States.
Travel Primarily for Personal
Reasons
If you travel outside the United States primarily
for vacation or for investment purposes, the en-
tire cost of the trip is a nondeductible personal
expense. However, if you spend some time at-
tending brief professional seminars or a con-
tinuing education program, you can deduct your
registration fees and other expenses you have
that are directly related to your business.
Example. The university from which you
graduated has a continuing education program
for members of its alumni association. This pro-
gram consists of trips to various foreign coun-
tries where academic exercises and conferen-
ces are set up to acquaint individuals in most
occupations with selected facilities in several
regions of the world. However, none of the con-
ferences are directed toward specific occupa-
tions or professions. It is up to each participant
to seek out specialists and organizational set-
tings appropriate to his or her occupational in-
terests.
Three-hour sessions are held each day over
a 5-day period at each of the selected overseas
facilities where participants can meet with indi-
vidual practitioners. These sessions are com-
posed of a variety of activities including work-
shops, mini-lectures, role playing, skill
development, and exercises. Professional con-
ference directors schedule and conduct the
sessions. Participants can choose those ses-
sions they wish to attend.
You can participate in this program since
you are a member of the alumni association.
You and your family take one of the trips. You
spend about 2 hours at each of the planned
sessions. The rest of the time you go touring
and sightseeing with your family. The trip lasts
less than 1 week.
Your travel expenses for the trip aren’t de-
ductible since the trip was primarily a vacation.
However, registration fees and any other inci-
dental expenses you have for the five planned
sessions you attended that are directly related
and beneficial to your business are deductible
business expenses. These expenses should be
specifically stated in your records to ensure
proper allocation of your deductible business
expenses.
Luxury Water Travel
If you travel by ocean liner, cruise ship, or other
form of luxury water transportation for business
purposes, there is a daily limit on the amount
you can deduct. The limit is twice the highest
federal per diem rate allowable at the time of
your travel. (Generally, the federal per diem is
the amount paid to federal government employ-
ees for daily living expenses when they travel
away from home within the United States for
business purposes.)
Daily limit on luxury water travel. The high-
est federal per diem rate allowed and the daily
limit for luxury water travel in 2017 is shown in
the following table.
Page 8 Chapter 1 Travel
2.
Entertainment
You may be able to deduct business-related en-
tertainment expenses you have for entertaining
a client, customer, or employee. The rules and
definitions are summarized in Table 2-1.
You can deduct entertainment expenses only if
they are both ordinary and necessary and meet
one of the following tests.
Directly related test.
Associated test.
Both of these tests are explained later.
An ordinary expense is one that is common and
accepted in your trade or business. A neces-
sary expense is one that is helpful and appropri-
ate for your business. An expense doesn’t have
to be required to be considered necessary.
The amount you can deduct for enter-
tainment expenses may be limited.
Generally, you can deduct only 50% of
your unreimbursed entertainment expenses.
This limit is discussed later under 50% Limit.
Directly Related Test
To meet the directly related test for entertain-
ment expenses (including entertainment-related
meals), you must show that:
The main purpose of the combined busi-
ness and entertainment was the active
conduct of business,
You did engage in business with the per-
son during the entertainment period, and
You had more than a general expectation
of getting income or some other specific
business benefit at some future time.
Business generally isn’t considered to be
the main purpose when business and entertain-
ment are combined on hunting or fishing trips,
or on yachts or other pleasure boats. Even if
you show that business was the main purpose,CAUTION
!
you generally can’t deduct the expenses for the
use of an entertainment facility. See Entertain-
ment facilities under What Entertainment Ex-
penses Aren’t Deductible, later in this chapter.
You must consider all the facts, including
the nature of the business transacted and the
reasons for conducting business during the en-
tertainment. It isn’t necessary to devote more
time to business than to entertainment. How-
ever, if the business discussion is only inciden-
tal to the entertainment, the entertainment ex-
penses don’t meet the directly related test.
You don’t have to show that business
income or other business benefit ac-
tually resulted from each entertainment
expense.
Clear business setting. If the entertainment
takes place in a clear business setting and is for
your business or work, the expenses are con-
sidered directly related to your business or
work. The following situations are examples of
entertainment in a clear business setting.
Entertainment in a hospitality room at a
convention where business goodwill is cre-
ated through the display or discussion of
business products.
Entertainment that is mainly a price rebate
on the sale of your products (such as a
restaurant owner providing an occasional
free meal to a loyal customer).
Entertainment of a clear business nature
occurring under circumstances where
there is no meaningful personal or social
relationship between you and the persons
entertained. An example is entertainment
of business and civic leaders at the open-
ing of a new hotel or play when the pur-
pose is to get business publicity rather
than to create or maintain the goodwill of
the persons entertained.
Expenses not considered directly related.
Entertainment expenses generally aren’t con-
sidered directly related if you aren’t there or in
situations where there are substantial distrac-
tions that generally prevent you from actively
conducting business. The following are exam-TIP
ples of situations where there are substantial
distractions.
A meeting or discussion at a nightclub, the-
ater, or sporting event.
A meeting or discussion during what is es-
sentially a social gathering, such as a
cocktail party.
A meeting with a group that includes per-
sons who aren’t business associates at
places such as cocktail lounges, country
clubs, golf clubs, athletic clubs, or vacation
resorts.
Associated Test
Even if your expenses don’t meet the directly
related test, they may meet the associated test.
To meet the associated test for entertain-
ment expenses (including entertainment-related
meals), you must show that the entertainment
is:
Associated with the active conduct of your
trade or business, and
Directly before or after a substantial busi-
ness discussion (defined later).
Associated with trade or business. Gener-
ally, an expense is associated with the active
conduct of your trade or business if you can
show that you had a clear business purpose for
having the expense. The purpose may be to get
new business or to encourage the continuation
of an existing business relationship.
Substantial business discussion. Whether a
business discussion is substantial depends on
the facts of each case. A business discussion
won’t be considered substantial unless you can
show that you actively engaged in the discus-
sion, meeting, negotiation, or other business
transaction to get income or some other specific
business benefit.
The meeting doesn’t have to be for any
specified length of time, but you must show that
the business discussion was substantial in rela-
tion to the meal or entertainment. It isn’t neces-
sary that you devote more time to business than
to entertainment. You don’t have to discuss
business during the meal or entertainment.
Meetings at conventions. You are consid-
ered to have a substantial business discussion
if you attend meetings at a convention or similar
event, or at a trade or business meeting spon-
sored and conducted by a business or profes-
sional organization. However, your reason for
attending the convention or meeting must be to
further your trade or business. The organization
that sponsors the convention or meeting must
schedule a program of business activities that is
the main activity of the convention or meeting.
Directly before or after business discus-
sion. If the entertainment is held on the same
day as the business discussion, it is considered
to be held directly before or after the business
discussion.
If the entertainment and the business dis-
cussion aren’t held on the same day, you must
consider the facts of each case to see if the as-
sociated test is met. Among the facts to con-
sider are the place, date, and duration of the
Table 2-1. When Are Entertainment Expenses Deductible?
General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or
employee if the expenses meet the directly related test or the associated test.
Definitions Entertainment includes any activity generally considered to provide entertainment,
amusement, or recreation, and includes meals provided to a customer or client.
An ordinary expense is one that is common and accepted in your trade or business.
A necessary expense is one that is helpful and appropriate.
Tests to be met Directly related test
Entertainment took place in a clear business setting, or
Main purpose of entertainment was the active conduct of business, and
You did engage in business with the person during the entertainment period, and
You had more than a general expectation of getting income or some other specific
business benefit.
Associated test
Entertainment is associated with your trade or business, and
Entertainment is directly before or after a substantial business discussion.
Other rules You can’t deduct the cost of your meal as an entertainment expense if you are claiming
the meal as a travel expense.
You can’t deduct expenses that are lavish or extravagant under the circumstances.
You generally can deduct only 50% of your unreimbursed entertainment expenses
(see 50% Limit, later).
Page 10 Chapter 2 Entertainment
business discussion. If you or your business as-
sociates are from out of town, you must also
consider the dates of arrival and departure, and
the reasons the entertainment and the discus-
sion didn’t take place on the same day.
Example. A group of business associates
comes from out of town to your place of busi-
ness to hold a substantial business discussion.
If you entertain those business guests on the
evening before the business discussion, or on
the evening of the day following the business
discussion, the entertainment generally is con-
sidered to be held directly before or after the
discussion. The expense meets the associated
test.
50% Limit
In general, you can deduct only 50% of your
business-related meal and entertainment ex-
penses. (If you are subject to the Department of
Transportation's “hours of service” limits, you
can deduct 80% of your business-related meal
and entertainment expenses. See Individuals
subject to “hours of service” limits, later.)
The 50% limit applies to employees or their
employers, and to self-employed persons (in-
cluding independent contractors) or their
clients, depending on whether the expenses
are reimbursed.
Figure A summarizes the general rules ex-
plained in this section.
The 50% limit applies to business meals or
entertainment expenses you have while:
Traveling away from home (whether eating
alone or with others) on business;
Entertaining customers at your place of
business, a restaurant, or other location; or
Attending a business convention or recep-
tion, business meeting, or business lun-
cheon at a club.
Included expenses. Expenses subject to the
50% limit include:
Taxes and tips relating to a business meal
or entertainment activity,
Cover charges for admission to a night-
club,
Rent paid for a room in which you hold a
dinner or cocktail party, and
Amounts paid for parking at a sports
arena.
However, the cost of transportation to and from
a business meal or a business-related enter-
tainment activity isn’t subject to the 50% limit.
Application of 50% limit. The 50% limit on
meal and entertainment expenses applies if the
expense is otherwise deductible and isn’t cov-
ered by one of the exceptions discussed later.
The 50% limit also applies to certain meal
and entertainment expenses that aren’t busi-
ness related. It applies to meal and entertain-
ment expenses you have for the production of
income, including rental or royalty income. It
also applies to the cost of meals included in de-
ductible educational expenses.
When to apply the 50% limit. You apply the
50% limit after determining the amount that
would otherwise qualify for a deduction. You
first have to determine the amount of meal and
entertainment expenses that would be deducti-
ble under the other rules discussed in this publi-
cation.
Example 1. You spend $200 for a busi-
ness-related meal. If $110 of that amount isn’t
allowable because it is lavish and extravagant,
the remaining $90 is subject to the 50% limit.
Your deduction can’t be more than $45 (50%
(0.50) × $90).
Example 2. You purchase two tickets to a
concert and give them to a client. You pur-
chased the tickets through a ticket agent. You
paid $200 for the two tickets, which had a face
value of $80 each ($160 total). Your deduction
can’t be more than $80 (50% (0.50) × $160).
Exceptions to the 50% Limit
Generally, business-related meal and entertain-
ment expenses are subject to the 50% limit.
Figure A can help you determine if the 50% limit
applies to you.
Expenses not subject to 50% limit. Your
meal or entertainment expense isn’t subject to
the 50% limit if the expense meets one of the
following exceptions.
1—Employee's reimbursed expenses. If
you are an employee, you aren’t subject to the
50% limit on expenses for which your employer
reimburses you under an accountable plan. Ac-
countable plans are discussed in chapter 6.
2—Self-employed. If you are self-em-
ployed, your deductible meal and entertainment
expenses aren’t subject to the 50% limit if all of
the following requirements are met.
You have these expenses as an independ-
ent contractor.
Your customer or client reimburses you or
gives you an allowance for these expenses
in connection with services you perform.
You provide adequate records of these ex-
penses to your customer or client. (See
chapter 5.)
In this case, your client or customer is sub-
ject to the 50% limit on the expenses.
Example. You are a self-employed attorney
who adequately accounts for meal and enter-
tainment expenses to a client who reimburses
you for these expenses. You aren’t subject to
the directly related or associated test, nor are
Figure A. Does the 50% Limit Apply to Your Expenses?
There are exceptions to these rules. See Exceptions to the 50% Limit, later.All employees and self-employed persons can use this chart.
Were your meal and entertainment expenses reimbursed?
(Count only reimbursements your employer didn’t
include in box 1 of your Form W-2. If self-employed,
count only reimbursements from clients or customers that
aren’t included on Form 1099-MISC, Miscellaneous
Income.)
If an employee, did you adequately account
to your employer under an accountable plan?
If self-employed, did you provide the payer
with adequate records? (See chapter 6.)
Did your expenses exceed the reimbursement?
For the amount reimbursed... For the excess amount...
Your meal and entertainment
expenses are NOT subject to
the 50% limit. However, since
the reimbursement wasn’t
treated as wages or as other
taxable income, you can’t
deduct the expenses.
Your meal and
entertainment expenses
ARE subject to
the 50% limit.
Yes
No
No
Yes
YesNo
Start Here
Chapter 2 Entertainment Page 11
you subject to the 50% limit. If the client can de-
duct the expenses, the client is subject to the
50% limit.
If you (as an independent contractor) have
expenses for meals and entertainment related
to providing services for a client but don’t ade-
quately account for and seek reimbursement
from the client for those expenses, you are sub-
ject to the directly related or associated test and
to the 50% limit.
3—Advertising expenses. You aren’t
subject to the 50% limit if you provide meals,
entertainment, or recreational facilities to the
general public as a means of advertising or pro-
moting goodwill in the community. For example,
neither the expense of sponsoring a television
or radio show nor the expense of distributing
free food and beverages to the general public is
subject to the 50% limit.
4—Sale of meals or entertainment. You
aren’t subject to the 50% limit if you actually sell
meals, entertainment, goods and services, or
use of facilities to the public. For example, if you
run a nightclub, your expense for the entertain-
ment you furnish to your customers, such as a
floor show, isn’t subject to the 50% limit.
5—Charitable sports event. You aren’t
subject to the 50% limit if you pay for a package
deal that includes a ticket to a qualified charita-
ble sports event. For the conditions the sports
event must meet, see Exception for events that
benefit charitable organizations under What En-
tertainment Expenses Are Deductible, later.
Individuals subject to “hours of service”
limits. You can deduct a higher percentage of
your meal expenses while traveling away from
your tax home if the meals take place during or
incident to any period subject to the Department
of Transportation's “hours of service” limits. The
percentage is 80%.
Individuals subject to the Department of
Transportation's “hours of service” limits include
the following persons.
Certain air transportation workers (such as
pilots, crew, dispatchers, mechanics, and
control tower operators) who are under
Federal Aviation Administration regula-
tions.
Interstate truck operators and bus drivers
who are under Department of Transporta-
tion regulations.
Certain railroad employees (such as engi-
neers, conductors, train crews, dispatch-
ers, and control operations personnel) who
are under Federal Railroad Administration
regulations.
Certain merchant mariners who are under
Coast Guard regulations.
What Entertainment
Expenses
Are Deductible?
This section explains different types of enter-
tainment expenses you may be able to deduct.
Entertainment. Entertainment includes any
activity generally considered to provide enter-
tainment, amusement, or recreation. Examples
include entertaining guests at nightclubs; at so-
cial, athletic, and sporting clubs; at theaters; at
sporting events; on yachts; or on hunting, fish-
ing, vacation, and similar trips.
Entertainment also may include meeting
personal, living, or family needs of individuals,
such as providing meals, a hotel suite, or a car
to customers or their families.
A meal as a form of entertainment. En-
tertainment includes the cost of a meal you pro-
vide to a customer or client, whether the meal is
a part of other entertainment or by itself. A meal
expense includes the cost of food, beverages,
taxes, and tips for the meal. To deduct an enter-
tainment-related meal, you or your employee
must be present when the food or beverages
are provided.
You can’t claim the cost of your meal
both as an entertainment expense and
as a travel expense.
Meals sold in the normal course of your
business aren’t considered entertain-
ment.
Deduction may depend on your type of
business. Your kind of business may deter-
mine if a particular activity is considered enter-
tainment. For example, if you are a dress de-
signer and have a fashion show to introduce
your new designs to store buyers, the show
generally isn’t considered entertainment. This is
because fashion shows are typical in your busi-
ness. But, if you are an appliance distributor
and hold a fashion show for the spouses of your
retailers, the show generally is considered en-
tertainment.
Separating costs. If you have one expense
that includes the costs of entertainment and
other services (such as lodging or transporta-
tion), you must allocate that expense between
the cost of entertainment and the cost of other
services. You must have a reasonable basis for
making this allocation. For example, you must
allocate your expenses if a hotel includes enter-
tainment in its lounge on the same bill with your
room charge.
Taking turns paying for meals or entertain-
ment. If a group of business acquaintances
takes turns picking up each others' meal or en-
tertainment checks primarily for personal rea-
sons, without regard to whether any business
purposes are served, no member of the group
can deduct any part of the expense.
Lavish or extravagant expenses. You can’t
deduct expenses for entertainment that are lav-
ish or extravagant. An expense isn’t considered
lavish or extravagant if it is reasonable consid-
ering the facts and circumstances. Expenses
won’t be disallowed just because they are more
than a fixed dollar amount or take place at de-
luxe restaurants, hotels, nightclubs, or resorts.
Allocating between business and nonbusi-
ness. If you entertain business and nonbusi-
ness individuals at the same event, you must di-
vide your entertainment expenses between
business and nonbusiness. You can deduct
only the business part. If you can’t establish theCAUTION
!TIP
part of the expense for each person participat-
ing, allocate the expense to each participant on
a pro rata basis.
Example. You entertain a group of individu-
als that includes yourself, three business pros-
pects, and seven social guests. Only 4 11 of the
expense qualifies as a business entertainment
expense. You can’t deduct the expenses for the
seven social guests because those costs are
nonbusiness expenses.
Trade association meetings. You can deduct
entertainment expenses that are directly related
to and necessary for attending business meet-
ings or conventions of certain exempt organiza-
tions if the expenses of your attendance are re-
lated to your active trade or business. These
organizations include business leagues, cham-
bers of commerce, real estate boards, trade as-
sociations, and professional associations.
Entertainment tickets. Generally, you can’t
deduct more than the face value of an entertain-
ment ticket, even if you paid a higher price. For
example, you can’t deduct service fees you pay
to ticket agencies or brokers or any amount
over the face value of the tickets you pay to re-
sellers.
Exception for events that benefit chari-
table organizations. Different rules apply
when the cost of a ticket to a sports event bene-
fits a charitable organization. You can take into
account the full cost you pay for the ticket, even
if it is more than the face value, if all of the fol-
lowing conditions apply.
The event's main purpose is to benefit a
qualified charitable organization.
The entire net proceeds go to the charity.
The event uses volunteers to perform sub-
stantially all the event's work.
The 50% limit on entertainment doesn’t
apply to any expense for a package
deal that includes a ticket to such a
charitable sports event.
Example 1. You purchase tickets to a golf
tournament organized by the local volunteer fire
company. All net proceeds will be used to buy
new fire equipment. The volunteers will run the
tournament. You can deduct the entire cost of
the tickets as a business expense if they other-
wise qualify as an entertainment expense.
Example 2. You purchase tickets to a col-
lege football game through a ticket broker. After
having a business discussion, you take a client
to the game. Net proceeds from the game go to
colleges that qualify as charitable organizations.
However, since the colleges also pay individu-
als to perform services, such as coaching and
recruiting, you can only use the face value of
the tickets in determining your business deduc-
tion.
Skyboxes and other private luxury boxes. If
you rent a skybox or other private luxury box for
more than one event at the same sports arena,
you generally can’t deduct more than the price
of a nonluxury box seat ticket.
To determine whether a skybox has been
rented for more than one event, count eachTIP
Page 12 Chapter 2 Entertainment
game or other performance as one event. For
example, renting a skybox for a series of playoff
games is considered renting it for more than
one event. All skyboxes you rent in the same
arena, along with any rentals by related parties,
are considered in making this determination.
Related parties include:
Family members (spouses, ancestors, and
lineal descendants),
Parties who have made a reciprocal ar-
rangement involving the sharing of sky-
boxes,
Related corporations,
A partnership and its principal partners,
and
A corporation and a partnership with com-
mon ownership.
Example. You pay $3,000 to rent a 10-seat
skybox at Team Stadium for three baseball
games. The cost of regular nonluxury box seats
at each event is $30 a seat. You can deduct
(subject to the 50% limit) $900 ((10 seats × $30
each) × 3 events).
Food and beverages in skybox seats. If
expenses for food and beverages are sepa-
rately stated, you can deduct these expenses in
addition to the amounts allowable for the sky-
box, subject to the requirements and limits that
apply. The amounts separately stated for food
and beverages must be reasonable. You can’t
inflate the charges for food and beverages to
avoid the limited deduction for skybox rentals.
What Entertainment
Expenses Aren’t
Deductible?
This section explains different types of enter-
tainment expenses you generally may not be
able to deduct.
Club dues and membership fees. You can’t
deduct dues (including initiation fees) for mem-
bership in any club organized for:
Business,
Pleasure,
Recreation, or
Other social purpose.
This rule applies to any membership organiza-
tion if one of its principal purposes is either:
To conduct entertainment activities for
members or their guests; or
To provide members or their guests with
access to entertainment facilities, dis-
cussed later.
The purposes and activities of a club, not its
name, will determine whether or not you can
deduct the dues. You can’t deduct dues paid to:
Country clubs,
Golf and athletic clubs,
Airline clubs,
Hotel clubs, and
Clubs operated to provide meals under cir-
cumstances generally considered to be
conducive to business discussions.
Entertainment facilities. Generally, you can’t
deduct any expense for the use of an entertain-
ment facility. This includes expenses for depre-
ciation and operating costs such as rent, utilit-
ies, maintenance, and protection.
An entertainment facility is any property you
own, rent, or use for entertainment. Examples
include a yacht, hunting lodge, fishing camp,
swimming pool, tennis court, bowling alley, car,
airplane, apartment, hotel suite, or home in a
vacation resort.
Out-of-pocket expenses. You can deduct
out-of-pocket expenses, such as for food and
beverages, catering, gas, and fishing bait, that
you provided during entertainment at a facility.
These aren’t expenses for the use of an enter-
tainment facility. However, these expenses are
subject to the directly related and associated
tests and to the 50% limit, all discussed earlier.
Expenses for spouses. You generally can’t
deduct the cost of entertainment for your
spouse or for the spouse of a customer. How-
ever, you can deduct these costs if you can
show you had a clear business purpose, rather
than a personal or social purpose, for providing
the entertainment.
Example. You entertain a customer. The
cost is an ordinary and necessary business ex-
pense and is allowed under the entertainment
rules. The customer's spouse joins you be-
cause it is impractical to entertain the customer
without the spouse. You can deduct the cost of
entertaining the customer's spouse. If your
spouse joins the party because the customer's
spouse is present, the cost of the entertainment
for your spouse is also deductible.
Gift or entertainment. Any item that might be
considered either a gift or entertainment gener-
ally will be considered entertainment. However,
if you give a customer packaged food or bever-
ages that you intend the customer to use at a
later date, treat it as a gift.
If you give a customer tickets to a theater
performance or sporting event and you don’t go
Figure B. When Are Transportation Expenses Deductible?
Most employees and self-employed persons can use this chart. (Don’t use this chart if your home is
your principal place of business. See Office in the home.)Temporary
work location
Home Regular or
main job
Always
deductible
Always
deductible
Second job
Never deductible
Never deductible
Deductible if you have a
regular or main job
at another location
Always deductible
Home: The place where you reside. Transportation expenses between your home and
your main or regular place of work are personal commuting expenses.
Regular or main job: Your principal place of business. If you have more than one job,
you must determine which one is your regular or main job. Consider the time you
spend at each, the activity you have at each, and the income you earn at each.
Temporary work location: A place where your work assignment is realistically
expected to last (and does in fact last) one year or less. Unless you have a regular
place of business, you can only deduct your transportation expenses to a temporary
work location outside your metropolitan area.
Second job: If you regularly work at two or more places in one day, whether or not
for the same employer, you can deduct your transportation expenses of getting from
one workplace to another. If you don’t go directly from your first job to your second
job, you can only deduct the transportation expenses of going directly from your first
job to your second job. You can’t deduct your transportation expenses between
your home and a second job on a day off from your main job.
Chapter 2 Entertainment Page 13
with the customer to the performance or event,
you have a choice. You can treat the tickets as
either a gift or entertainment, whichever is to
your advantage.
You can change your treatment of the tick-
ets at a later date by filing an amended return.
Generally, an amended return must be filed
within 3 years from the date the original return
was filed or within 2 years from the time the tax
was paid, whichever is later.
If you go with the customer to the event, you
must treat the cost of the tickets as an entertain-
ment expense. You can’t choose, in this case,
to treat the tickets as a gift.
3.
Gifts
If you give gifts in the course of your trade or
business, you can deduct all or part of the cost.
This chapter explains the limits and rules for de-
ducting the costs of gifts.
$25 limit. You can deduct no more than $25
for business gifts you give directly or indirectly
to each person during your tax year. A gift to a
company that is intended for the eventual per-
sonal use or benefit of a particular person or a
limited class of people will be considered an in-
direct gift to that particular person or to the indi-
viduals within that class of people who receive
the gift.
If you give a gift to a member of a custom-
er's family, the gift is generally considered to be
an indirect gift to the customer. This rule doesn’t
apply if you have a bona fide, independent busi-
ness connection with that family member and
the gift isn’t intended for the customer's even-
tual use.
If you and your spouse both give gifts, both
of you are treated as one taxpayer. It doesn’t
matter whether you have separate businesses,
are separately employed, or whether each of
you has an independent connection with the re-
cipient. If a partnership gives gifts, the partner-
ship and the partners are treated as one tax-
payer.
Example. Bob Jones sells products to Lo-
cal Company. He and his wife, Jan, gave Local
Company three gourmet gift baskets to thank
them for their business. They paid $80 for each
gift basket, or $240 total. Three of Local Com-
pany's executives took the gift baskets home for
their families' use. Bob and Jan have no inde-
pendent business relationship with any of the
executives' other family members. They can de-
duct a total of $75 ($25 limit × 3) for the gift bas-
kets.
Incidental costs. Incidental costs, such as en-
graving on jewelry, or packaging, insuring, and
mailing, are generally not included in determin-
ing the cost of a gift for purposes of the $25
limit.
A cost is incidental only if it doesn’t add sub-
stantial value to the gift. For example, the cost
of gift wrapping is an incidental cost. However,
the purchase of an ornamental basket for pack-
aging fruit isn’t an incidental cost if the value of
the basket is substantial compared to the value
of the fruit.
Exceptions. The following items aren’t consid-
ered gifts for purposes of the $25 limit.
1. An item that costs $4 or less and:
a. Has your name clearly and perma-
nently imprinted on the gift, and
b. Is one of a number of identical items
you widely distribute. Examples in-
clude pens, desk sets, and plastic
bags and cases.
2. Signs, display racks, or other promotional
material to be used on the business prem-
ises of the recipient.
Gift or entertainment. Any item that might be
considered either a gift or entertainment gener-
ally will be considered entertainment. However,
if you give a customer packaged food or bever-
ages you intend the customer to use at a later
date, treat it as a gift.
If you give a customer tickets to a theater
performance or sporting event and you don’t go
with the customer to the performance or event,
you have a choice. You can treat the cost of the
tickets as either a gift expense or an entertain-
ment expense, whichever is to your advantage.
You can change your treatment of the tick-
ets at a later date by filing an amended return.
Generally, an amended return must be filed
within 3 years from the date the original return
was filed or within 2 years from the time the tax
was paid, whichever is later.
If you go with the customer to the event, you
must treat the cost of the tickets as an entertain-
ment expense. You can’t choose, in this case,
to treat the cost of the tickets as a gift expense.
4.
Transportation
This chapter discusses expenses you can de-
duct for business transportation when you
aren’t traveling away from home as defined in
chapter 1. These expenses include the cost of
transportation by air, rail, bus, taxi, etc., and the
cost of driving and maintaining your car.
Transportation expenses include the ordinary
and necessary costs of all of the following.
Getting from one workplace to another in
the course of your business or profession
when you are traveling within the city or
general area that is your tax home. Tax
home is defined in chapter 1.
Visiting clients or customers.
Going to a business meeting away from
your regular workplace.
Getting from your home to a temporary
workplace when you have one or more
regular places of work. These temporary
workplaces can be either within the area of
your tax home or outside that area.
Transportation expenses don’t include expen-
ses you have while traveling away from home
overnight. Those expenses are travel expenses
discussed in chapter 1. However, if you use
your car while traveling away from home over-
night, use the rules in this chapter to figure your
car expense deduction. See Car Expenses,
later.
Daily transportation expenses you incur while
traveling from home to one or more regular pla-
ces of business are generally nondeductible
commuting expenses. However, there may be
exceptions to this general rule. You can deduct
daily transportation expenses incurred going
between your residence and a temporary work
station outside the metropolitan area where you
live. Also, daily transportation expenses can be
deducted if (1) you have one or more regular
work locations away from your residence; or (2)
your residence is your principal place of busi-
ness and you incur expenses going between
the residence and another work location in the
same trade or business, regardless of whether
the work is temporary or permanent and regard-
less of the distance.
Illustration of transportation expenses. Fig-
ure B, earlier, illustrates the rules that apply for
deducting transportation expenses when you
have a regular or main job away from your
home. You may want to refer to it when decid-
ing whether you can deduct your transportation
expenses.
Temporary work location. If you have one or
more regular work locations away from your
home and you commute to a temporary work lo-
cation in the same trade or business, you can
deduct the expenses of the daily round-trip
transportation between your home and the tem-
porary location, regardless of distance.
If your employment at a work location is real-
istically expected to last (and does in fact last)
for 1 year or less, the employment is temporary
unless there are facts and circumstances that
would indicate otherwise.
If your employment at a work location is real-
istically expected to last for more than 1 year or
if there is no realistic expectation that the em-
ployment will last for 1 year or less, the employ-
ment isn’t temporary, regardless of whether it
actually lasts for more than 1 year.
If employment at a work location initially is
realistically expected to last for 1 year or less,
but at some later date the employment is realis-
tically expected to last more than 1 year, that
employment will be treated as temporary (un-
less there are facts and circumstances that
would indicate otherwise) until your expectation
changes. It won’t be treated as temporary after
the date you determine it will last more than 1
year.
If the temporary work location is beyond the
general area of your regular place of work and
you stay overnight, you are traveling away from
home. You may have deductible travel expen-
ses as discussed in chapter 1.
Page 14 Chapter 4 Transportation
No regular place of work. If you have no reg-
ular place of work but ordinarily work in the met-
ropolitan area where you live, you can deduct
daily transportation costs between home and a
temporary work site outside that metropolitan
area.
Generally, a metropolitan area includes the
area within the city limits and the suburbs that
are considered part of that metropolitan area.
You can’t deduct daily transportation costs
between your home and temporary work sites
within your metropolitan area. These are nonde-
ductible commuting expenses.
Two places of work. If you work at two places
in one day, whether or not for the same em-
ployer, you can deduct the expense of getting
from one workplace to the other. However, if for
some personal reason you don’t go directly
from one location to the other, you can’t deduct
more than the amount it would have cost you to
go directly from the first location to the second.
Transportation expenses you have in going
between home and a part-time job on a day off
from your main job are commuting expenses.
You can’t deduct them.
Armed Forces reservists. A meeting of an
Armed Forces reserve unit is a second place of
business if the meeting is held on a day on
which you work at your regular job. You can de-
duct the expense of getting from one workplace
to the other as just discussed under Two places
of work.
You usually can’t deduct the expense if the
reserve meeting is held on a day on which you
don’t work at your regular job. In this case, your
transportation generally is a nondeductible
commuting expense. However, you can deduct
your transportation expenses if the location of
the meeting is temporary and you have one or
more regular places of work.
If you ordinarily work in a particular metro-
politan area but not at any specific location and
the reserve meeting is held at a temporary loca-
tion outside that metropolitan area, you can de-
duct your transportation expenses.
If you travel away from home overnight to at-
tend a guard or reserve meeting, you can de-
duct your travel expenses. These expenses are
discussed in chapter 1.
If you travel more than 100 miles away from
home in connection with your performance of
services as a member of the reserves, you may
be able to deduct some of your reserve-related
travel costs as an adjustment to gross income
rather than as an itemized deduction. For more
information, see Armed Forces Reservists Trav-
eling More Than 100 Miles From Home under
Special Rules in chapter 6.
Commuting expenses. You can’t deduct the
costs of taking a bus, trolley, subway, or taxi, or
of driving a car between your home and your
main or regular place of work. These costs are
personal commuting expenses. You can’t de-
duct commuting expenses no matter how far
your home is from your regular place of work.
You can’t deduct commuting expenses even if
you work during the commuting trip.
Example. You sometimes use your cell
phone to make business calls while commuting
to and from work. Sometimes business asso-
ciates ride with you to and from work, and you
have a business discussion in the car. These
activities don’t change the trip from personal to
business. You can’t deduct your commuting ex-
penses.
Parking fees. Fees you pay to park your
car at your place of business are nondeductible
commuting expenses. You can, however, de-
duct business-related parking fees when visit-
ing a customer or client.
Advertising display on car. Putting dis-
play material that advertises your business on
your car doesn’t change the use of your car
from personal use to business use. If you use
this car for commuting or other personal uses,
you still can’t deduct your expenses for those
uses.
Car pools. You can’t deduct the cost of us-
ing your car in a nonprofit car pool. Don’t in-
clude payments you receive from the passen-
gers in your income. These payments are
considered reimbursements of your expenses.
However, if you operate a car pool for a profit,
you must include payments from passengers in
your income. You can then deduct your car ex-
penses (using the rules in this publication).
Hauling tools or instruments. Hauling
tools or instruments in your car while commut-
ing to and from work doesn’t make your car ex-
penses deductible. However, you can deduct
any additional costs you have for hauling tools
or instruments (such as for renting a trailer you
tow with your car).
Union members' trips from a union hall.
If you get your work assignments at a union hall
and then go to your place of work, the costs of
getting from the union hall to your place of work
are nondeductible commuting expenses. Al-
though you need the union to get your work as-
signments, you are employed where you work,
not where the union hall is located.
Office in the home. If you have an office in
your home that qualifies as a principal place of
business, you can deduct your daily transporta-
tion costs between your home and another
work location in the same trade or business.
(See Pub. 587, Business Use of Your Home, for
information on determining if your home office
qualifies as a principal place of business.)
Examples of deductible transportation. The
following examples show when you can deduct
transportation expenses based on the location
of your work and your home.
Example 1. You regularly work in an office
in the city where you live. Your employer sends
you to a 1-week training session at a different
office in the same city. You travel directly from
your home to the training location and return
each day. You can deduct the cost of your daily
round-trip transportation between your home
and the training location.
Example 2. Your principal place of busi-
ness is in your home. You can deduct the cost
of round-trip transportation between your quali-
fying home office and your client's or custom-
er's place of business.
Example 3. You have no regular office, and
you don’t have an office in your home. In this
case, the location of your first business contact
inside the metropolitan area is considered your
office. Transportation expenses between your
home and this first contact are nondeductible
commuting expenses. Transportation expenses
between your last business contact and your
home are also nondeductible commuting ex-
penses. While you can’t deduct the costs of
these trips, you can deduct the costs of going
from one client or customer to another.
Car Expenses
If you use your car for business purposes, you
ordinarily can deduct car expenses. You gener-
ally can use one of the two following methods to
figure your deductible expenses.
Standard mileage rate.
Actual car expenses.
If you use actual expenses to figure your de-
duction for a car you lease, there are rules that
affect the amount of your lease payments you
can deduct. See Leasing a Car, later.
In this publication, “car” includes a van,
pickup, or panel truck. For the definition of “car”
for depreciation purposes, see Car defined un-
der Actual Car Expenses, later.
Rural mail carriers. If you are a rural mail car-
rier, you may be able to treat the qualified reim-
bursement you received as your allowable ex-
pense. Because the qualified reimbursement is
treated as paid under an accountable plan, your
employer shouldn’t include the reimbursement
in your income.
If your vehicle expenses are more than the
amount of your reimbursement, you can deduct
the unreimbursed expenses as an itemized de-
duction on Schedule A (Form 1040). You must
complete Form 2106 and attach it to your Form
1040, U.S. Individual Income Tax Return.
A “qualified reimbursement” is the reim-
bursement you receive that meets both of the
following conditions.
It is given as an equipment maintenance
allowance (EMA) to employees of the U.S.
Postal Service.
It is at the rate contained in the 1991 col-
lective bargaining agreement. Any later
agreement can’t increase the qualified re-
imbursement amount by more than the
rate of inflation.
See your employer for information on your reim-
bursement.
If you are a rural mail carrier and re-
ceived a qualified reimbursement, you
can’t use the standard mileage rate.
Standard Mileage Rate
You may be able to use the standard mileage
rate to figure the deductible costs of operating
your car for business purposes. For 2017, the
standard mileage rate for the cost of operating
your car for business use is 53.5 cents (0.535)
per mile.CAUTION
!
Chapter 4 Transportation Page 15
If you use the standard mileage rate for
a year, you can’t deduct your actual car
expenses for that year. You can’t de-
duct depreciation, lease payments, mainte-
nance and repairs, gasoline (including gasoline
taxes), oil, insurance, or vehicle registration
fees. See Choosing the standard mileage rate
and Standard mileage rate not allowed, later.
You generally can use the standard mileage
rate whether or not you are reimbursed and
whether or not any reimbursement is more or
less than the amount figured using the standard
mileage rate. See chapter 6 for more informa-
tion on reimbursements.
Choosing the standard mileage rate. If you
want to use the standard mileage rate for a car
you own, you must choose to use it in the first
year the car is available for use in your busi-
ness. Then, in later years, you can choose to
use either the standard mileage rate or actual
expenses.
If you want to use the standard mileage rate
for a car you lease, you must use it for the entire
lease period. For leases that began on or be-
fore December 31, 1997, the standard mileage
rate must be used for the entire portion of the
lease period (including renewals) that is after
1997.
You must make the choice to use the stand-
ard mileage rate by the due date (including ex-
tensions) of your return. You can’t revoke the
choice. However, in later years, you can switch
from the standard mileage rate to the actual ex-
penses method. If you change to the actual ex-
penses method in a later year, but before your
car is fully depreciated, you have to estimate
the remaining useful life of the car and use
straight line depreciation.
Example. Larry is an employee who occa-
sionally uses his own car for business purpo-
ses. He purchased the car in 2015, but he didn’t
claim any unreimbursed employee expenses on
his 2015 tax return. Because Larry didn’t use
the standard mileage rate the first year the car
was available for business use, he can’t use the
standard mileage rate in 2017 to claim unreim-
bursed employee business expenses.
For more information about depreciation in-
cluded in the standard mileage rate, see Excep-
tion under Methods of depreciation, later.
Standard mileage rate not allowed. You
can’t use the standard mileage rate if you:
Use five or more cars at the same time
(such as in fleet operations);
Claimed a depreciation deduction for the
car using any method other than straight
line, for example, MACRS (as discussed
later under Depreciation Deduction);
Claimed a section 179 deduction (dis-
cussed later) on the car;
Claimed the special depreciation allow-
ance on the car;
Claimed actual car expenses after 1997 for
a car you leased; or
Are a rural mail carrier who received a
qualified reimbursement. (See Rural mail
carriers, earlier.)
Note. You can elect to use the standard
mileage rate if you used a car for hire (such as aCAUTION
!
taxi) unless the standard mileage rate is other-
wise not allowed, as discussed above.
Five or more cars. If you own or lease five
or more cars that are used for business at the
same time, you can’t use the standard mileage
rate for the business use of any car. However,
you may be able to deduct your actual expen-
ses for operating each of the cars in your busi-
ness. See Actual Car Expenses, later, for infor-
mation on how to figure your deduction.
You aren’t using five or more cars for busi-
ness at the same time if you alternate using
(use at different times) the cars for business.
The following examples illustrate the rules
for when you can and can’t use the standard
mileage rate for five or more cars.
Example 1. Marcia, a salesperson, owns
three cars and two vans that she alternates us-
ing for calling on her customers. She can use
the standard mileage rate for the business mile-
age of the three cars and the two vans because
she doesn’t use them at the same time.
Example 2. Tony and his employees use
his four pickup trucks in his landscaping busi-
ness. During the year, he traded in two of his
old trucks for two newer ones. Tony can use the
standard mileage rate for the business mileage
of all six of the trucks he owned during the year.
Example 3. Chris owns a repair shop and
an insurance business. He and his employees
use his two pickup trucks and van for the repair
shop. Chris alternates using his two cars for the
insurance business. No one else uses the cars
for business purposes. Chris can use the stand-
ard mileage rate for the business use of the
pickup trucks, van, and the cars because he
never has more than four vehicles used for
business at the same time.
Example 4. Maureen owns a car and four
vans that are used in her housecleaning busi-
ness. Her employees use the vans, and she
uses the car to travel to various customers.
Maureen can’t use the standard mileage rate for
the car or the vans. This is because all five vehi-
cles are used in Maureen's business at the
same time. She must use actual expenses for
all vehicles.
Interest. If you are an employee, you can’t de-
duct any interest paid on a car loan. This ap-
plies even if you use the car 100% for business
as an employee.
However, if you are self-employed and use
your car in your business, you can deduct that
part of the interest expense that represents your
business use of the car. For example, if you use
your car 60% for business, you can deduct 60%
of the interest on Schedule C (Form 1040). You
can’t deduct the part of the interest expense
that represents your personal use of the car.
If you use a home equity loan to pur-
chase your car, you may be able to de-
duct the interest. See Pub. 936, Home
Mortgage Interest Deduction, for more informa-
tion.
Personal property taxes. If you itemize your
deductions on Schedule A (Form 1040), you
can deduct on line 7 state and local personalTIP
property taxes on motor vehicles. You can take
this deduction even if you use the standard
mileage rate or if you don’t use the car for busi-
ness.
If you are self-employed and use your car in
your business, you can deduct the business
part of state and local personal property taxes
on motor vehicles on Schedule C (Form 1040),
Schedule C-EZ (Form 1040), or Schedule F
(Form 1040). If you itemize your deductions,
you can include the remainder of your state and
local personal property taxes on the car on
Schedule A (Form 1040).
Parking fees and tolls. In addition to using
the standard mileage rate, you can deduct any
business-related parking fees and tolls. (Park-
ing fees you pay to park your car at your place
of work are nondeductible commuting expen-
ses.)
Sale, trade-in, or other disposition. If you
sell, trade in, or otherwise dispose of your car,
you may have a gain or loss on the transaction
or an adjustment to the basis of your new car.
See Disposition of a Car, later.
Actual Car Expenses
If you don’t use the standard mileage rate, you
may be able to deduct your actual car expen-
ses.
If you qualify to use both methods, you
may want to figure your deduction both
ways to see which gives you a larger
deduction.
Actual car expenses include:
Depreciation
Licenses
Lease
payments
Registration
fees
Gas Insurance Repairs
Oil Garage rent Tires
Tolls Parking fees
If you have fully depreciated a car that you
still use in your business, you can continue to
claim your other actual car expenses. Continue
to keep records, as explained later in chapter 5.
Business and personal use. If you use your
car for both business and personal purposes,
you must divide your expenses between busi-
ness and personal use. You can divide your ex-
pense based on the miles driven for each pur-
pose.
Example. You are a contractor and drive
your car 20,000 miles during the year: 12,000
miles for business use and 8,000 miles for per-
sonal use. You can claim only 60% (12,000 ÷
20,000) of the cost of operating your car as a
business expense.
Employer-provided vehicle. If you use a ve-
hicle provided by your employer for business
purposes, you can deduct your actual unreim-
bursed car expenses. You can’t use the stand-
ard mileage rate. See Vehicle Provided by Your
Employer in chapter 6.
Interest on car loans. If you are an employee,
you can’t deduct any interest paid on a car loan.TIP
Page 16 Chapter 4 Transportation
This interest is treated as personal interest and
isn’t deductible. If you are self-employed and
use your car in that business, see Interest, ear-
lier, under Standard Mileage Rate.
Taxes paid on your car. If you are an em-
ployee, you can deduct personal property taxes
paid on your car if you itemize deductions. En-
ter the amount paid on line 7 of Schedule A
(Form 1040).
Sales taxes. Generally, sales taxes on
your car are part of your car's basis and are re-
covered through depreciation, discussed later.
Fines and collateral. You can’t deduct fines
you pay or collateral you forfeit for traffic viola-
tions.
Casualty and theft losses. If your car is dam-
aged, destroyed, or stolen, you may be able to
deduct part of the loss not covered by insur-
ance. See Pub. 547, Casualties, Disasters, and
Thefts, for information on deducting a loss on
your car.
Depreciation and section 179 deductions.
Generally, the cost of a car, plus sales tax and
improvements, is a capital expense. Because
the benefits last longer than 1 year, you gener-
ally can’t deduct a capital expense. However,
you can recover this cost through the section
179 deduction (the deduction allowed by sec-
tion 179 of the Internal Revenue Code), special
depreciation allowance, and depreciation de-
ductions. Depreciation allows you to recover
the cost over more than 1 year by deducting
part of it each year. The section 179 deduction,
special depreciation allowance, and deprecia-
tion deductions are discussed later.
Generally, there are limits on these deduc-
tions. Special rules apply if you use your car
50% or less in your work or business.
You can claim a section 179 deduction and
use a depreciation method other than straight
line only if you don’t use the standard mileage
rate to figure your business-related car expen-
ses in the year you first place a car in service.
If, in the year you first place a car in service,
you claim either a section 179 deduction or use
a depreciation method other than straight line
for its estimated useful life, you can’t use the
standard mileage rate on that car in any future
year.
Car defined. For depreciation purposes, a car
is any four-wheeled vehicle (including a truck or
van) made primarily for use on public streets,
roads, and highways. Its unloaded gross vehi-
cle weight must not be more than 6,000
pounds. A car includes any part, component, or
other item physically attached to it or usually in-
cluded in the purchase price.
A car doesn’t include:
An ambulance, hearse, or combination
ambulance-hearse used directly in a busi-
ness;
A vehicle used directly in the business of
transporting persons or property for pay or
hire; or
A truck or van that is a qualified nonperso-
nal use vehicle.
Qualified nonpersonal use vehicles.
These are vehicles that by their nature aren’t
likely to be used more than a minimal amount
for personal purposes. They include trucks and
vans that have been specially modified so that
they aren’t likely to be used more than a mini-
mal amount for personal purposes, such as by
installation of permanent shelving and painting
the vehicle to display advertising or the compa-
ny's name. Delivery trucks with seating only for
the driver, or only for the driver plus a folding
jump seat, are qualified nonpersonal use vehi-
cles.
More information. See Depreciation De-
duction, later, for more information on how to
depreciate your vehicle.
Section 179 Deduction
The section 179 deduction allows you to treat a
portion or all of the cost of a car as a current ex-
pense. If you choose to deduct all or part of the
cost as a current expense, you must reduce
your depreciable basis in the car by the amount
of the section 179 deduction.
There is a limit on the total section 179
deduction, special depreciation allow-
ance, and depreciation deduction for
cars, trucks, and vans that may reduce or elimi-
nate any benefit from claiming the section 179
deduction. See Depreciation Limits, later.
You can claim the section 179 deduction
only in the year you place the car in service. For
this purpose, a car is placed in service when it
is ready and available for a specifically as-
signed use, whether in a trade or business, a
tax-exempt activity, a personal activity, or for
the production of income. Even if you aren’t us-
ing the property, it is in service when it is ready
and available for its specifically assigned use.
A car first used for personal purposes can’t
qualify for the deduction in a later year when its
use changes to business.
Example. In 2016, you bought a new car
and used it for personal purposes. In 2017, you
began to use it for business. Changing its use to
business use doesn’t qualify the cost of your car
for a section 179 deduction in 2017. However,
you can claim a depreciation deduction for the
business use of the car starting in 2017. See
Depreciation Deduction, later.
More than 50% business use requirement.
You must use the property more than 50% for
business to claim any section 179 deduction. If
you used the property more than 50% for busi-
ness, multiply the cost of the property by the
percentage of business use. The result is the
cost of the property that can qualify for the sec-
tion 179 deduction.
Example. Peter purchased a car in April
2017 for $24,500 and used it 60% for business.
Based on his business usage, the total cost of
Peter's car that qualifies for the section 179 de-
duction is $14,700 ($24,500 cost × 60% (0.60)
business use). But see Limit on total section
179, special depreciation allowance, and de-
preciation deduction, discussed later.TIP
Limits. There are limits on:
The amount of the section 179 deduction;
The section 179 deduction for sport utility
and certain other vehicles; and
The total amount of the section 179 deduc-
tion, special depreciation allowance, and
depreciation deduction (discussed later)
you can claim for a qualified property.
Limit on the amount of the section 179
deduction. For 2017, the total amount you can
choose to deduct under section 179 generally
can’t be more than $510,000.
If the cost of your section 179 property
placed in service in 2017 is over $2,030,000,
you must reduce the $510,000 dollar limit (but
not below zero) by the amount of cost over
$2,030,000. If the cost of your section 179 prop-
erty placed in service during 2017 is $2,540,000
or more, you can’t take a section 179 deduc-
tion.
The total amount you can deduct under sec-
tion 179 each year after you apply the limits lis-
ted above cannot be more than the taxable in-
come from the active conduct of any trade or
business during the year.
If you are married and file a joint return, you
and your spouse are treated as one taxpayer in
determining any reduction to the dollar limit, re-
gardless of which of you purchased the prop-
erty or placed it in service.
If you and your spouse file separate returns,
you are treated as one taxpayer for the dollar
limit. You must allocate the dollar limit (after any
reduction) between you.
For more information on the above section
179 deduction limits, see Pub. 946.
Limit for sport utility and certain other
vehicles. For sport utility and certain other ve-
hicles placed in service in 2017, the portion of
the vehicle's cost taken into account in figuring
your section 179 deduction is limited to
$25,000. This rule applies to any four-wheeled
vehicle primarily designed or used to carry pas-
sengers over public streets, roads, or highways,
that isn’t subject to any of the passenger auto-
mobile limits explained under Depreciation Lim-
its, later, and that is rated at no more than
14,000 pounds gross vehicle weight. However,
the $25,000 limit doesn’t apply to any vehicle:
Designed to have a seating capacity of
more than nine persons behind the driver's
seat;
Equipped with a cargo area of at least 6
feet in interior length that is an open area
or is designed for use as an open area but
is enclosed by a cap and isn’t readily ac-
cessible directly from the passenger com-
partment; or
That has an integral enclosure, fully en-
closing the driver compartment and load
carrying device, doesn’t have seating rear-
ward of the driver's seat, and has no body
section protruding more than 30 inches
ahead of the leading edge of the wind-
shield.
Limit on total section 179 deduction,
special depreciation allowance, and depre-
ciation deduction. Generally, the total amount
of section 179 deduction, special depreciation
allowance, and depreciation deduction you can
claim for a car that is qualified property and that
you placed in service in 2017 is $11,160. The
Chapter 4 Transportation Page 17
limit is reduced if your business use of the car is
less than 100%. See Depreciation Limits, later,
for more information.
Example. In the earlier example under
More than 50% business use requirement, Pe-
ter had a car with a cost (for purposes of the
section 179 deduction) of $14,700. However,
based on Peter's business usage of his car, the
total of his section 179, special depreciation al-
lowance, and depreciation deductions is limited
to $6,696 ($11,160 limit x 60% (0.60) business
use).
Cost of car. For purposes of the section 179
deduction, the cost of the car doesn’t include
any amount figured by reference to any other
property held by you at any time. For example,
if you buy (for cash and a trade-in) a new car to
use in your business, your cost for purposes of
the section 179 deduction doesn’t include your
adjusted basis in the car you trade in for the
new car. Your cost includes only the cash you
paid.
Basis of car for depreciation. The
amount of the section 179 deduction reduces
your basis in your car. If you choose the section
179 deduction, you must subtract the amount of
the deduction from the cost of your car. The re-
sulting amount is the basis in your car you use
to figure your depreciation deduction.
When to choose. If you want to take the sec-
tion 179 deduction, you must make the choice
in the tax year you place the car in service for
business or work.
How to choose. Employees use Form 2106 to
make this choice and report the section 179 de-
duction. All others use Form 4562.
File the appropriate form with either of the
following.
Your original tax return filed for the year the
property was placed in service (whether or
not you file it timely).
An amended return filed within the time
prescribed by law. An election made on an
amended return must specify the item of
section 179 property to which the election
applies and the part of the cost of each
such item to be taken into account. The
amended return must also include any re-
sulting adjustments to taxable income.
You must keep records that show the
specific identification of each piece of
qualifying section 179 property. These
records must show how you acquired the prop-
erty, the person you acquired it from, and when
you placed it in service.
Revoking an election. An election (or any
specification made in the election) to take a
section 179 deduction for 2017 can only be re-
voked with the Commissioner's approval.
Recapture of section 179 deduction. To be
eligible to claim the section 179 deduction, you
must use your car more than 50% for business
or work in the year you acquired it. If your busi-
ness use of the car is 50% or less in a later tax
year during the recovery period, you have to re-
capture (include in income) in that later year
any excess depreciation. Any section 179 de-CAUTION
!
duction claimed on the car is included in figur-
ing the excess depreciation. For information on
this calculation, see Excess depreciation, later
in this chapter under Car Used 50% or Less for
Business.
Dispositions. If you dispose of a car on which
you had claimed the section 179 deduction, the
amount of that deduction is treated as a depre-
ciation deduction for recapture purposes. You
treat any gain on the disposition of the property
as ordinary income up to the amount of the sec-
tion 179 deduction and any allowable deprecia-
tion (unless you establish the amount actually
allowed). For information on the disposition of a
car, see Disposition of a Car, later.
Special Depreciation Allowance
You may be able to claim the special deprecia-
tion allowance for your car, truck, or van, if it is
qualified property and was placed in service in
2017. The allowance is an additional deprecia-
tion deduction for 50% of the car's depreciable
basis (after any section 179 deduction, but be-
fore figuring your regular depreciation deduc-
tion under MACRS). This allowance is in-
creased to 100% if the vehicle was purchased
and placed in service after September 27,
2017. The special depreciation allowance ap-
plies only for the first year the car is placed in
service. Further, while it applies to a new vehi-
cle regardless of the date in 2017 when it was
placed in service, it applies to a used vehicle
only if the vehicle was purchased and placed in
service after September 27, 2017. To qualify for
the allowance, more than 50% of the use of the
car must be in a qualified business use (as de-
fined under Depreciation Deduction, later).
Combined depreciation. Your combined sec-
tion 179 depreciation, special depreciation al-
lowance, and regular MACRS depreciation de-
duction is limited to the maximum allowable
depreciation deduction for cars of $11,160
($3,160 if you elect not to claim the special de-
preciation allowance). For trucks and vans, the
first-year limit is $11,560 ($3,560 if you elect not
to claim the special depreciation allowance).
See Depreciation Limits, later in this chapter.
Qualified car. To be a qualified car (including
trucks and vans) the car must meet all of the fol-
lowing tests.
You purchased the car new on or after
January 1, 2008, but only if no binding writ-
ten contract to acquire the car existed be-
fore January 1, 2008.
You placed the car in service in your trade
or business before January 1, 2020.
You used the car more than 50% in a quali-
fied business use.
Election not to claim the special deprecia-
tion allowance. You can elect not to claim the
special depreciation allowance for your car,
truck, or van, that is qualified property. If you
make this election, it applies to all 5-year prop-
erty placed in service during the year.
To make this election, attach a statement to
your timely filed return (including extensions) in-
dicating the class of property (5-year for cars)
for which you are making the election and that
you are electing not to claim the special
depreciation allowance for qualified property
acquired on or after January 1, 2008.
Unless you elect not to claim the spe-
cial depreciation allowance, you must
reduce the car's adjusted basis by the
amount of the allowance, even if the allowance
wasn’t claimed.
Depreciation Deduction
If you use actual car expenses to figure your de-
duction for a car you own and use in your busi-
ness, you can claim a depreciation deduction.
This means you can deduct a certain amount
each year as a recovery of your cost or other
basis in your car.
You generally need to know the following
things about the car you intend to depreciate.
Your basis in the car.
The date you place the car in service.
The method of depreciation and recovery
period you will use.
Basis. Your basis in a car for figuring deprecia-
tion is generally its cost. This includes any
amount you borrow or pay in cash, other prop-
erty, or services.
Generally, you figure depreciation on your
car, truck, or van using your unadjusted basis
(see Unadjusted basis, later). However, in
some situations you will use your adjusted basis
(your basis reduced by depreciation allowed or
allowable in earlier years). For one of these sit-
uations, see Exception under Methods of de-
preciation, later.
If you change the use of a car from personal
to business, your basis for depreciation is the
lesser of the fair market value or your adjusted
basis in the car on the date of conversion. Addi-
tional rules concerning basis are discussed
later in this chapter under Unadjusted basis.
Placed in service. You generally place a car
in service when it is available for use in your
work or business, in an income-producing activ-
ity, or in a personal activity. Depreciation begins
when the car is placed in service for use in your
work or business or for the production of in-
come.
For purposes of figuring depreciation, if you
first start using the car only for personal use and
later convert it to business use, you place the
car in service on the date of conversion.
Car placed in service and disposed of in
the same year. If you place a car in service
and dispose of it in the same tax year, you can’t
claim any depreciation deduction for that car.
Methods of depreciation. Generally, you fig-
ure depreciation on cars using the Modified Ac-
celerated Cost Recovery System (MACRS).
MACRS is discussed later in this chapter.
Exception. If you used the standard mile-
age rate in the first year of business use and
change to the actual expenses method in a later
year, you can’t depreciate your car under the
MACRS rules. You must use straight line depre-
ciation over the estimated remaining useful life
of the car.CAUTION
!
Page 18 Chapter 4 Transportation
To figure depreciation under the straight line
method, you must reduce your basis in the car
(but not below zero) by a set rate per mile for all
miles for which you used the standard mileage
rate. The rate per mile varies depending on the
year(s) you used the standard mileage rate. For
the rate(s) to use, see Depreciation adjustment
when you used the standard mileage rate under
Disposition of a Car, later.
This reduction of basis is in addition to those
basis adjustments described later under Unad-
justed basis. You must use your adjusted basis
in your car to figure your depreciation deduc-
tion. For additional information on the straight
line method of depreciation, see Pub. 946.
More-than-50%-use test. Generally, you must
use your car more than 50% for qualified busi-
ness use (defined next) during the year to use
MACRS. You must meet this
more-than-50%-use test each year of the recov-
ery period (6 years under MACRS) for your car.
If your business use is 50% or less, you
must use the straight line method to depreciate
your car. This is explained later under Car Used
50% or Less for Business.
Qualified business use. A qualified business
use is any use in your trade or business. It
doesn’t include use for the production of in-
come (investment use). However, you do com-
bine your business and investment use to figure
your depreciation deduction for the tax year.
Use of your car by another person. Don’t
treat any use of your car by another person as
use in your trade or business unless that use
meets one of the following conditions.
It is directly connected with your business.
It is properly reported by you as income to
the other person (and, if you have to, you
withhold tax on the income).
It results in a payment of fair market rent.
This includes any payment to you for the
use of your car.
Business use changes. If you used your car
more than 50% in qualified business use in the
year you placed it in service, but 50% or less in
a later year (including the year of disposition),
you have to change to the straight line method
of depreciation. See Qualified business use
50% or less in a later year under Car Used 50%
or Less for Business, later.
Property doesn’t cease to be used
more than 50% in qualified business
use by reason of a transfer at death.
Use for more than one purpose. If you use
your car for more than one purpose during the
tax year, you must allocate the use to the vari-
ous purposes. You do this on the basis of mile-
age. Figure the percentage of qualified busi-
ness use by dividing the number of miles you
drive your car for business purposes during the
year by the total number of miles you drive the
car during the year for any purpose.
Change from personal to business use. If
you change the use of a car from 100% per-
sonal use to business use during the tax year,
you may not have mileage records for the time
before the change to business use. In this case,TIP
you figure the percentage of business use for
the year as follows.
1. Determine the percentage of business use
for the period following the change. Do
this by dividing business miles by total
miles driven during that period.
2. Multiply the percentage in (1) by a fraction.
The numerator (top number) is the number
of months the car is used for business and
the denominator (bottom number) is 12.
Example. You use a car only for personal
purposes during the first 6 months of the year.
During the last 6 months of the year, you drive
the car a total of 15,000 miles of which 12,000
miles are for business. This gives you a busi-
ness use percentage of 80% (12,000 ÷ 15,000)
for that period. Your business use for the year is
40% (80% (0.80) × 6 12).
Limits. The amount you can claim for section
179, special depreciation allowance, and de-
preciation deductions may be limited. The maxi-
mum amount you can claim depends on the
year in which you placed your car in service.
You have to reduce the maximum amount if you
did not use the car exclusively for business.
See Depreciation Limits, later.
Unadjusted basis. You use your unadjusted
basis (often referred to as your basis or your ba-
sis for depreciation) to figure your depreciation
using the MACRS depreciation chart, explained
later under Modified Accelerated Cost Recov-
ery System (MACRS). Your unadjusted basis
for figuring depreciation is your original basis in-
creased or decreased by certain amounts.
To figure your unadjusted basis, begin with
your car's original basis, which generally is its
cost. Cost includes sales taxes (see Sales
taxes, earlier), destination charges, and dealer
preparation. Increase your basis by any sub-
stantial improvements you make to your car,
such as adding air conditioning or a new en-
gine. Decrease your basis by any section 179
deduction, special depreciation allowance, gas
guzzler tax, clean-fuel vehicle deduction (for ve-
hicles placed in service before January 1,
2006), and alternative motor vehicle credit.
See Form 8910, Alternative Motor Vehicle
Credit, for information on the alternative motor
vehicle credit. It is available on vehicles that
were acquired in 2016, even if they weren’t
place in service until 2017.
If your business use later falls to 50%
or less, you may have to recapture (in-
clude in your income) any excess de-
preciation. See Car Used 50% or Less for Busi-
ness, later, for more information.
If you acquired the car by gift or inheritance,
see Pub. 551, Basis of Assets, for information
on your basis in the car.
Improvements. A major improvement to a
car is treated as a new item of 5-year recovery
property. It is treated as placed in service in the
year the improvement is made. It doesn’t matter
how old the car is when the improvement is
added. Follow the same steps for depreciating
the improvement as you would for depreciating
the original cost of the car. However, you mustCAUTION
!
treat the improvement and the car as a whole
when applying the limits on the depreciation de-
ductions. Your car's depreciation deduction for
the year (plus any section 179 deduction, spe-
cial depreciation allowance, and depreciation
on any improvements) can’t be more than the
depreciation limit that applies for that year. See
Depreciation Limits, later.
Car trade-in. If you traded one car (the “old
car”) for another car (the “new car”) in 2017,
there are two ways you can treat the transac-
tion.
1. You can elect to treat the transaction as a
tax-free disposition of the old car and the
purchase of the new car. If you make this
election, you treat the old car as disposed
of at the time of the trade-in. The deprecia-
ble basis of the new car is the adjusted ba-
sis of the old car (figured as if 100% of the
car's use had been for business purposes)
plus any additional amount you paid for
the new car. You then figure your depreci-
ation deduction for the new car beginning
with the date you placed it in service. You
make this election by completing Form
2106, Part II, Section D. This method is
explained later, beginning at Effect of
trade-in on basis.
2. If you don’t make the election described in
(1), you must figure depreciation sepa-
rately for the remaining basis of the old car
and for any additional amount you paid for
the new car. You must apply two deprecia-
tion limits (see Depreciation Limits, later).
The limit that applies to the remaining ba-
sis of the old car generally is the amount
that would have been allowed had you not
traded in the old car. The limit that applies
to the additional amount you paid for the
new car generally is the limit that applies
for the tax year, reduced by the deprecia-
tion allowance for the remaining basis of
the old car. You must use Form 4562 to
figure your depreciation deduction. You
can’t use Form 2106, Part II, Section D.
This method is explained in Pub. 946.
If you elect to use the method described in
(1), you must do so on a timely filed tax return
(including extensions). Otherwise, you must
use the method described in (2).
Effect of trade-in on basis. The discus-
sion that follows applies to trade-ins of cars in
2017, where the election was made to treat the
transaction as a tax-free disposition of the old
car and the purchase of the new car. For infor-
mation on how to figure depreciation for cars in-
volved in a like-kind exchange (trade-in) in
2017, for which the election wasn’t made, see
Pub. 946 and Regulations section 1.168(i)-6(d)
(3).
Traded car used only for business. If
you trade in a car you used only in your busi-
ness for another car that will be used only in
your business, your original basis in the new car
is your adjusted basis in the old car, plus any
additional amount you pay for the new car.
Example. Paul trades in a car that has an
adjusted basis of $5,000 for a new car. In addi-
tion, he pays cash of $20,000 for the new car.
Chapter 4 Transportation Page 19
His original basis of the new car is $25,000 (his
$5,000 adjusted basis in the old car plus the
$20,000 cash paid). Paul's unadjusted basis is
$25,000 unless he claims the section 179 de-
duction, special depreciation allowance, or has
other increases or decreases to his original ba-
sis, discussed under Unadjusted basis, earlier.
Traded car used partly in business. If
you trade in a car you used partly in your busi-
ness for a new car you will use in your business,
you must make a “trade-in” adjustment for the
personal use of the old car. This adjustment has
the effect of reducing your basis in your old car,
but not below zero, for purposes of figuring your
depreciation deduction for the new car. (This
adjustment isn’t used, however, when you de-
termine the gain or loss on the later disposition
of the new car. See Pub. 544, Sales and Other
Dispositions of Assets, for information on how
to report the disposition of your car.)
To figure the unadjusted basis of your new
car for depreciation, first add to your adjusted
basis in the old car any additional amount you
pay for the new car. Then subtract from that to-
tal the excess, if any, of:
1. The total of the amounts that would have
been allowable as depreciation during the
tax years before the trade if 100% of the
use of the car had been business and in-
vestment use, over
2. The total of the amounts actually allowed
as depreciation during those years.
For information about figuring depreciation, see
Modified Accelerated Cost Recovery System
(MACRS) next.
Modified Accelerated Cost Recovery Sys-
tem (MACRS). The Modified Accelerated Cost
Recovery System (MACRS) is the name given
to the tax rules for getting back (recovering)
through depreciation deductions the cost of
property used in a trade or business or to pro-
duce income.
The maximum amount you can deduct is
limited, depending on the year you placed your
car in service. See Depreciation Limits, later.
Recovery period. Under MACRS, cars are
classified as 5-year property. You actually de-
preciate the cost of a car, truck, or van over a
period of 6 calendar years. This is because your
car is generally treated as placed in service in
the middle of the year, and you claim deprecia-
tion for one-half of both the first year and the
sixth year.
For more information on the qualifications
for this shorter recovery period and the percen-
tages to use in figuring the depreciation deduc-
tion, see chapter 4 of Pub. 946.
Depreciation methods. You can use one
of the following methods to depreciate your car.
The 200% declining balance method
(200% DB) over a 5-year recovery period
that switches to the straight line method
when that method provides an equal or
greater deduction.
The 150% declining balance method
(150% DB) over a 5-year recovery period
that switches to the straight line method
when that method provides an equal or
greater deduction.
The straight line method (SL) over a 5-year
recovery period.
If you use Table 4-1 (discussed later)
to determine your depreciation rate for
2017, you don’t need to determine in
what year using the straight line method pro-
vides an equal or greater deduction. This is be-
cause the chart has the switch to the straight
line method built into its rates.
Before choosing a method, you may wish to
consider the following facts.
Using the straight line method provides
equal yearly deductions throughout the re-
covery period.
Using the declining balance methods pro-
vides greater deductions during the earlier
recovery years with the deductions gener-
ally getting smaller each year.
MACRS depreciation chart. A 2017 MACRS
Depreciation Chart and instructions are inclu-
ded in this chapter as Table 4-1. Using this ta-
ble will make it easy for you to figure the 2017
depreciation deduction for your car. A similar
chart appears in the Instructions for Form 2106.
You may have to use the tables in Pub.
946 instead of using this MACRS De-
preciation Chart.
You must use the Depreciation Tables in
Pub. 946 rather than the 2017 MACRS Depreci-
ation Chart in this publication if any one of the
following four conditions applies to you.
1. You file your return on a fiscal year basis.
2. You file your return for a short tax year
(less than 12 months).
3. During the year, all of the following condi-
tions apply.
a. You placed some property in service
from January through September.
b. You placed some property in service
from October through December.
c. Your basis in the property you placed
in service from October through De-
cember (excluding nonresidential real
property, residential rental property,
and property placed in service and
disposed of in the same year) was
more than 40% of your total bases in
all property you placed in service dur-
ing the year.
4. You placed qualified property in service on
an Indian reservation.
Depreciation in future years. If you use
the percentages from the chart, you generally
must continue to use them for the entire recov-
ery period of your car. However, you can’t con-
tinue to use the chart if your basis in your car is
adjusted because of a casualty. In that case, for
the year of the adjustment and the remaining re-
covery period, figure the depreciation without
the chart using your adjusted basis in the car at
the end of the year of the adjustment and over
the remaining recovery period. See Figuring the
Deduction Without Using the Tables in chap-
ter 4 of Pub. 946.TIPCAUTION
!
In future years, don’t use the chart in
this edition of the publication. Instead,
use the chart in the publication or the
form instructions for those future years.
Disposition of car during recovery pe-
riod. If you dispose of the car before the end of
the recovery period, you are generally allowed a
half year of depreciation in the year of disposi-
tion unless you purchased the car during the
last quarter of a year. See Depreciation deduc-
tion for the year of disposition under Disposition
of a Car, later, for information on how to figure
the depreciation allowed in the year of disposi-
tion.
How to use the 2017 chart. To figure your
depreciation deduction for 2017, find the per-
centage in the column of Table 4-1 based on
the date that you first placed the car in service
and the depreciation method that you are using.
Multiply the unadjusted basis of your car (de-
fined earlier) by that percentage to determine
the amount of your depreciation deduction. If
you prefer to figure your depreciation deduction
without the help of the chart, see Pub. 946.
Your deduction can’t be more than the
maximum depreciation limit for cars.
See Depreciation Limits, later.
Example. Phil bought a used truck in Feb-
ruary 2016 to use exclusively in his landscape
business. He paid $9,200 for the truck with no
trade-in. Phil didn’t claim any section 179 de-
duction, the truck didn’t qualify for the special
depreciation allowance, and he chose to use
the 200% DB method to get the largest depreci-
ation deduction in the early years.
Phil used the MACRS Depreciation Chart in
2016 to find his percentage. The unadjusted ba-
sis of his truck equals its cost because Phil
used it exclusively for business. He multiplied
the unadjusted basis of his truck, $9,200, by the
percentage that applied, 20%, to figure his 2016
depreciation deduction of $1,840.
In 2017, Phil used the truck for personal pur-
poses when he repaired his father's cabin. His
records show that the business use of his truck
was 90% in 2017. Phil used Table 4-1 to find his
percentage. Reading down the first column for
the date placed in service and across to the
200% DB column, he locates his percentage,
32%. He multiplies the unadjusted basis of his
truck, $8,280 ($9,200 cost × 90% (0.90) busi-
ness use), by 32% (0.32) to figure his 2017 de-
preciation deduction of $2,650.
Depreciation Limits
There are limits on the amount you can deduct
for depreciation of your car, truck, or van. The
section 179 deduction and special depreciation
allowance are treated as depreciation for pur-
poses of the limits. The maximum amount you
can deduct each year depends on the year you
place the car in service. These limits are shown
in the following tables.TIPCAUTION
!
Page 20 Chapter 4 Transportation
Maximum
Depreciation Deduction
for Cars
Date 4th &
Placed 1st 2nd 3rd Later
In Service Year Year Year Years
2012–2017 $11,1601 $5,100 $3,050 $1,875
2010–2011 11,0602 4,900 2,950 1,775
2008–2009 10,9603 4,800 2,850 1,775
2007 3,060 4,900 2,850 1,775
2006 2,960 4,800 2,850 1,775
2005 2,960 4,700 2,850 1,675
2004 10,6103 4,800 2,850 1,675
5/06/2003–
12/31/2003
10,7104 4,900 2,950 1,775
1/01/2003–
5/05/2003
7,6605 4,900 2,950 1,775
1$3,160 if the car isn’t qualified property or if you elect
not to claim the special depreciation allowance.
2$3,060 if the car isn’t qualified property or if you elect
not to claim the special depreciation allowance.
3$2,960 if the car isn’t qualified property or if you elect
not to claim the special depreciation allowance.
4$7,660 if you acquired the car before 5/06/2003.
$3,060 if the car isn’t qualified property or if you
elect not to claim any special depreciation
allowance.
5$3,060 if you acquired the car before 9/11/2001, the
car isn’t qualified property, or you elect not to claim
the special depreciation allowance.
Trucks and vans. For 2017, the maximum
depreciation deductions for trucks and vans are
generally higher than those for cars. A truck or
van is a passenger automobile that is classified
by the manufacturer as a truck or van and rated
at 6,000 pounds gross vehicle weight or less.
Maximum
Depreciation Deduction
for Trucks and Vans
Date 4th &
Placed 1st 2nd 3rd Later
In Service Year Year Year Years
2017 $11,5601 $5,700 $3,450 $2,075
2016 11,5601 5,700 3,350 2,075
2015 11,4601 5,600 3,350 1,975
2014 11,4601 5,500 3,350 1,975
2013 11,3601 5,400 3,250 1,975
2012 11,3601 5,300 3,150 1,875
2011 11,2601 5,200 3,150 1,875
2010 11,1601 5,100 3,050 1,875
2009 11,0601 4,900 2,950 1,775
2008 11,1601 5,100 3,050 1,875
2007 3,260 5,200 3,050 1,875
2005–2006 3,260 5,200 3,150 1,875
2004 10,9101 5,300 3,150 1,875
2003 11,0101,2 5,400 3,250 1,975
1If the special depreciation allowance doesn’t apply
or you make the election not to claim the special
depreciation allowance, the first-year limit is $3,560
for 2017 and 2016, $3,460 for 2015 and 2014,
$3,360 for 2013 and 2012, $3,260 for 2011, $3,160
for 2010, $3,060 for 2009, $3,160 for 2008, $3,260
for 2004, and $3,360 for 2003.
2If the truck or van was acquired before 5/06/2003,
the truck or van is qualified property, and you claim
the special depreciation allowance for the truck or
van, the maximum deduction is $7,960.
Car used less than full year. The depreci-
ation limits aren’t reduced if you use a car for
less than a full year. This means that you don’t
reduce the limit when you either place a car in
service or dispose of a car during the year.
However, the depreciation limits are reduced if
you don’t use the car exclusively for business
and investment purposes. See Reduction for
personal use next.
Reduction for personal use. The deprecia-
tion limits are reduced based on your percent-
age of personal use. If you use a car less than
100% in your business or work, you must deter-
mine the depreciation deduction limit by multi-
plying the limit amount by the percentage of
business and investment use during the tax
year.
Section 179 deduction. The section 179 de-
duction is treated as a depreciation deduction.
If you place a car that isn’t a truck or van in
service in 2017, use it only for business, and
choose the section 179 deduction, the special
depreciation allowance and the depreciation
deduction for that car for 2017 is limited to
$11,160.
Example. On September 4, 2017, Jack
bought a used car for $10,000 and placed it in
service. He used it 80% for his business, and
he chooses to take a section 179 deduction for
the car. The car isn’t qualified property for pur-
poses of the special depreciation allowance.
Before applying the limit, Jack figures his
maximum section 179 deduction to be $8,000.
This is the cost of his qualifying property (up to
the maximum $510,000 amount) multiplied by
his business use ($10,000 × 80% (0.80)).
Jack then figures that his section 179 de-
duction for 2017 is limited to $2,528 (80% of
$3,160). He then figures his unadjusted basis of
$5,472 (($10,000 × 80% (0.80)) − $2,528) for
determining his depreciation deduction. Jack
has reached his maximum depreciation deduc-
tion for 2017. For 2018, Jack will use his unad-
justed basis of $5,472 to figure his depreciation
deduction.
Deductions in years after the recovery pe-
riod. If the depreciation deductions for your car
are reduced under the passenger automobile
limits (discussed earlier), you will have unrecov-
ered basis in your car at the end of the recovery
period. If you continue to use your car for busi-
ness, you can deduct that unrecovered basis
(subject to depreciation limits) after the recov-
ery period ends.
Unrecovered basis. This is your cost or
other basis in the car reduced by any clean-fuel
vehicle deduction (for vehicles placed in service
before January 1, 2006), alternative motor vehi-
cle credit, electric vehicle credit, gas guzzler
tax, and depreciation (including any special de-
preciation allowance, discussed earlier, unless
you elect not to claim it) and section 179 deduc-
tions that would have been allowable if you had
used the car 100% for business and investment
use.
The recovery period. For 5-year property,
your recovery period is 6 calendar years. A part
year's depreciation is allowed in the first calen-
dar year, a full year's depreciation is allowed in
each of the next 4 calendar years, and a part
year's depreciation is allowed in the 6th calen-
dar year.
Under MACRS, your recovery period is the
same whether you use declining balance or
straight line depreciation. You determine your
unrecovered basis in the 7th year after you
placed the car in service.
How to treat unrecovered basis. If you
continue to use your car for business after the
recovery period, you can claim a depreciation
deduction in each succeeding tax year until you
recover your basis in the car. The maximum
amount you can deduct each year is deter-
mined by the date you placed the car in service
and your business-use percentage. For exam-
ple, no deduction is allowed for a year you use
your car 100% for personal purposes.
Example. In April 2011, Bob bought and
placed in service a car he used exclusively in
his business. The car cost $31,500. Bob didn’t
claim a section 179 deduction or the special de-
preciation allowance for the car. He continued
to use the car 100% in his business throughout
the recovery period (2011 through 2016). For
those years, Bob used the MACRS Deprecia-
tion Chart (200% declining balance method)
and the Maximum Depreciation Deduction for
Cars table, earlier, for the applicable tax year to
figure his depreciation deductions during the re-
covery period. Bob's depreciation deductions
were subject to the depreciation limits so he will
Chapter 4 Transportation Page 21
have unrecovered basis at the end of the recov-
ery period as shown in the following table.
MACRS Deprec.
Year % Amount Limit Allowed
2011 20.00 $6,300 $3,060 $3,060
2012 32.00 10,080 4,900 4,900
2013 19.20 6,048 2,950 2,950
2014 11.52 3,629 1,775 1,775
2015 11.52 3,629 1,775 1,775
2016 5.76 1,814 1,775 1,775
Total $31,500 $16,235
For the correct limit, see Maximum Depreci-
ation Deduction for Cars under Depreciation
Limits, earlier, for the maximum amount of de-
preciation allowed each year.
At the end of 2016, Bob had an unrecovered
basis in the car of $15,265 ($31,500 – $16,235).
If Bob continued to use the car 100% for busi-
ness in 2017 and later years, he can claim a de-
preciation deduction equal to the lesser of
$1,775 or his remaining unrecovered basis.
If Bob's business use of the car was less
than 100% during any year, his depreciation de-
duction would be less than the maximum
amount allowable for that year. However, in de-
termining his unrecovered basis in the car, he
would still reduce his original basis by the maxi-
mum amount allowable as if the business use
had been 100%. For example, if Bob had used
his car 60% for business instead of 100%, his
allowable depreciation deductions would have
been $9,741 ($16,235 × 60% (0.60)), but he still
would have to reduce his basis by $16,235 to
determine his unrecovered basis.
Car Used 50% or Less
for Business
If you use your car 50% or less for qualified
business use (defined earlier under Deprecia-
tion Deduction) either in the year the car is
placed in service or in a later year, special rules
apply. The rules that apply in these two situa-
tions are explained in the following paragraphs.
(For this purpose, “car” was defined earlier un-
der Actual Car Expenses and includes certain
trucks and vans.)
Qualified business use 50% or less in year
placed in service. If you use your car 50% or
less for qualified business use, the following
rules apply.
You can’t take the section 179 deduction.
You can’t take the special depreciation al-
lowance.
You must figure depreciation using the
straight line method over a 5-year recovery
period. You must continue to use the
straight line method even if your percent-
age of business use increases to more
than 50% in a later year.
Instead of making the computation yourself,
you can use column (c) of Table 4-1 to find the
percentage to use.
Example. In May 2017, Dan bought a car
for $17,500. He used it 40% for his consulting
business. Because he didn’t use the car more
than 50% for business, Dan can’t take any sec-
tion 179 deduction or special depreciation al-
lowance, and he must use the straight line
method over a 5-year recovery period to re-
cover the cost of his car.
Dan deducts $700 in 2017. This is the lesser
of:
Table 4-1. 2017 MACRS Depreciation Chart
(Use to Figure Depreciation for 2017.)
If you claim actual expenses for your car, use the chart below to find the depreciation method
and percentage to use for your 2017 return for cars placed in service in 2017.
First, using the left column, find the date you first placed the car in service in 2017. Then select
the depreciation method and percentage from column (a), (b), or (c) following the rules
explained in this chapter.
For cars placed in service before 2017, you must use the same method you used on last
year's return unless a decline in your business use requires you to change to the straight
line method. Refer back to the MACRS Depreciation Chart for the year you placed the
car in service. (See Car Used 50% or Less for Business, later.)
Multiply the unadjusted basis of your car by your business use percentage. Multiply the
result by the percentage you found in the chart to find the amount of your depreciation
deduction for 2017. (Also see Depreciation Limits, earlier.)CAUTION
!
If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan.
1–Sept. 30 percentage instead of the Oct. 1–Dec. 31 percentage for your car.
To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year, and 2) the basis of all business property you placed in
service during that entire year. If the basis of the property placed in service after September isn’t more than 40% of the basis of all property (certain property is excluded) placed in
service for the entire year, use the percentage for Jan. 1–Sept. 30 for figuring depreciation for your car. See Which Convention Applies? in chapter 4 of Pub. 946 for more details.
Example. You buy machinery (basis of $32,000) in May 2017 and a new van (basis of $20,000) in October 2017, both used 100% in your business. You use the percentage for Jan. 1–
Sept. 30, 2017, to figure the depreciation for your van. This is because the $20,000 basis of the property (van) placed in service after September isn’t more than 40% of the basis of all
property placed in service during the year (40%(0.40) × ($32,000 + 20,000) = $20,800).
(a) (b) (c)
Date Placed In Service 200% Declining
Balance (200% DB)1
150% Declining
Balance (150% DB)1
Straight Line
(SL)
Oct. 1–Dec. 31, 2017 200 DB 5.0% 150 DB 3.75% SL 2.5%
Jan. 1–Sept. 30, 2017 200 DB 20.0 150 DB 15.0 SL 10.0
Oct. 1–Dec. 31, 2016 200 DB 38.0 150 DB 28.88 SL 20.0
Jan. 1–Sept. 30, 2016 200 DB 32.0 150 DB 25.5 SL 20.0
Oct. 1–Dec. 31, 2015 200 DB 22.8 150 DB 20.21 SL 20.0
Jan. 1–Sept. 30, 2015 200 DB 19.2 150 DB 17.85 SL 20.0
Oct. 1–Dec. 31, 2014 200 DB 13.68 150 DB 16.4 SL 20.0
Jan. 1–Sept. 30, 2014 200 DB 11.52 150 DB 16.66 SL 20.0
Oct. 1–Dec. 31, 2013 200 DB 10.94 150 DB 16.41 SL 20.0
Jan. 1–Sept. 30, 2013 200 DB 11.52 150 DB 16.66 SL 20.0
Oct. 1–Dec. 31, 2012 200 DB 9.58 150 DB 14.35 SL 17.5
Jan. 1–Sept. 30, 2012 200 DB 5.76 150 DB 8.33 SL 10.0
Prior to 20122
1 You can use this column only if the business use of your car is more than 50%.
2 If your car was subject to the maximum limits for depreciation and you have unrecovered basis in the car, you can continue to claim depreciation. See
Deductions in years after the recovery period under Depreciation Limits, earlier.
Page 22 Chapter 4 Transportation
1. $700 (($17,500 cost × 40% (0.40) busi-
ness use) × 10% recovery percentage
(from column (c), Table 4-1), or
2. $1,264 ($3,160 maximum limit × 40%
(0.40) business use).
Qualified business use 50% or less in a
later year. If you use your car more than 50%
in qualified business use in the tax year it is
placed in service but the business use drops to
50% or less in a later year, you can no longer
use an accelerated depreciation method for that
car.
For the year the business use drops to 50%
or less and all later years in the recovery period,
you must use the straight line depreciation
method over a 5-year recovery period. In addi-
tion, for the year your business use drops to
50% or less, you must recapture (include in
your gross income) any excess depreciation
(discussed later). You also increase the adjus-
ted basis of your car by the same amount.
Example. In June 2014, you purchased a
car for exclusive use in your business. You met
the more-than-50%-use test for the first 3 years
of the recovery period (2014 through 2016) but
failed to meet it in the fourth year (2017). You
determine your depreciation for 2017 using
20% (from column (c) of Table 4-1). You also
will have to determine and include in your gross
income any excess depreciation, discussed
next.
Excess depreciation. You must include
any excess depreciation in your gross income
and add it to your car's adjusted basis for the
first tax year in which you don’t use the car
more than 50% in qualified business use. Use
Form 4797, Sales of Business Property, to fig-
ure and report the excess depreciation in your
gross income.
Excess depreciation is:
1. The amount of the depreciation deduc-
tions allowable for the car (including any
section 179 deduction claimed and any
special depreciation allowance claimed)
for tax years in which you used the car
more than 50% in qualified business use,
minus
2. The amount of the depreciation deduc-
tions that would have been allowable for
those years if you hadn’t used the car
more than 50% in qualified business use
for the year you placed it in service. This
means the amount of depreciation figured
using the straight line method.
Example. In September 2013, you bought
a car for $20,500 and placed it in service. You
didn’t claim the section 179 deduction or the
special depreciation allowance. You used the
car exclusively in qualified business use for
2013, 2014, 2015, and 2016. For those years,
you used the appropriate MACRS Depreciation
Chart to figure depreciation deductions totaling
$13,185 ($3,160 for 2013, $5,100 for 2014,
$3,050 for 2015, and $1,875 for 2016) under
the 200% DB method.
During 2017, you used the car 30% for busi-
ness and 70% for personal purposes. Since you
didn’t meet the more-than-50%-use test, you
must switch from the 200% DB depreciation
method to the straight line depreciation method
for 2017, and include in gross income for 2017
your excess depreciation determined as fol-
lows.
Total depreciation claimed:
(MACRS 200% DB method) $13,185
Minus total depreciation allowable:
(Straight line method)
2013—10% of $20,500 $2,050
(Limit: $3,160)
2014—20% of $20,500 4,100
(Limit: $5,100)
2015—20% of $20,500 3,050
(Limit: $3,050)
2016—20% of $20,500 1,875 -11,075
(Limit: $1,875)
Excess depreciation $2,110
For the correct limit, see Maximum Depreci-
ation Deduction for Cars under Depreciation
Limits, earlier, for the maximum amount of de-
preciation allowed each year.
In 2017, using Form 4797, you figure and re-
port the $2,110 excess depreciation you must
include in your gross income. Your adjusted ba-
sis in the car is also increased by $2,110. Your
2017 depreciation is $1,230 ($20,500 (unadjus-
ted basis) × 30% (0.30) (business use percent-
age) × 20% (0.20) (from column (c) of Table 4-1
on the line for Jan. 1–Sept. 30, 2012)). How-
ever, your depreciation deduction is limited to
$563 ($1,875 x 30% (0.30) business use).
Leasing a Car
If you lease a car, truck, or van that you use in
your business, you can use the standard mile-
age rate or actual expenses to figure your de-
ductible expense. This section explains how to
figure actual expenses for a leased car, truck,
or van.
Deductible payments. If you choose to use
actual expenses, you can deduct the part of
each lease payment that is for the use of the ve-
hicle in your business. You can’t deduct any
part of a lease payment that is for personal use
of the vehicle, such as commuting.
You must spread any advance payments
over the entire lease period. You can’t deduct
any payments you make to buy a car, truck, or
van even if the payments are called lease pay-
ments.
If you lease a car, truck, or van for 30 days
or more, you may have to reduce your lease
payment deduction by an “inclusion amount,”
explained next.
Inclusion Amounts
If you lease a car, truck, or van that you use in
your business for a lease term of 30 days or
more, you may have to include an inclusion
amount in your income for each tax year you
lease the vehicle. To do this, you don’t add an
amount to income. Instead, you reduce your de-
duction for your lease payment. (This reduction
has an effect similar to the limit on the deprecia-
tion deduction you would have on the vehicle if
you owned it.)
The inclusion amount is a percentage of part
of the fair market value of the leased vehicle
multiplied by the percentage of business and in-
vestment use of the vehicle for the tax year. It is
prorated for the number of days of the lease
term in the tax year.
The inclusion amount applies to each tax
year that you lease the vehicle if the fair market
value (defined next) when the lease began was
more than the amounts shown in the following
tables.
Cars
(Except for Trucks and Vans)
Year Lease Began Fair Market Value
2013–2017 $19,000
2010–2012 18,500
Trucks and Vans
Year Lease Began Fair Market Value .
2014–2017 $19,500
2010–2013 19,000
Fair market value. Fair market value is the
price at which the property would change hands
between a willing buyer and seller, neither hav-
ing to buy or sell, and both having reasonable
knowledge of all the necessary facts. Sales of
similar property around the same date may be
helpful in figuring the fair market value of the
property.
Figure the fair market value on the first day
of the lease term. If the capitalized cost of a car
is specified in the lease agreement, use that
amount as the fair market value.
Figuring the inclusion amount. Inclusion
amounts are listed in Appendices A-1 through
A-5 for cars and in Appendices B-1 through B-5
for trucks and vans. If the fair market value of
the vehicle is $100,000 or less, use the appro-
priate appendix (depending on the year you first
placed the vehicle in service) to determine the
inclusion amount. If the fair market value is
more than $100,000, see the Revenue Proce-
dure(s) identified in the footnote of the appendi-
ces for the inclusion amount.
For each tax year during which you lease
the car for business, determine your inclusion
amount by following these three steps.
1. Locate the appendix that applies to you.
To find the inclusion amount, do the fol-
lowing.
a. Find the line that includes the fair mar-
ket value of the car on the first day of
the lease term.
b. Go across the line to the column for
the tax year in which the car is used
under the lease to find the dollar
amount. For the last tax year of the
lease, use the dollar amount for the
preceding year.
2. Prorate the dollar amount from (1b) for the
number of days of the lease term included
in the tax year.
Chapter 4 Transportation Page 23
3. Multiply the prorated amount from (2) by
the percentage of business and invest-
ment use for the tax year. This is your in-
clusion amount.
Example. On January 17, 2017, you leased
a car for 3 years and placed it in service for use
in your business. The car had a fair market
value of $32,250 on the first day of the lease
term. You use the car 75% for business and
25% for personal purposes during each year of
the lease. Assuming you continue to use the car
75% for business, you use Appendix A-5 to ar-
rive at the following inclusion amounts for each
year of the lease. For the last tax year of the
lease, 2020, you use the amount for the preced-
ing year.
Tax
year
Dollar
amount Proration
Business
use
Inclusion
amount
2017 $30 348/365 75% $21
2018 67 365/365 75% 50
2019 99 365/365 75% 74
2020 989 16/366 75% 3
Note. 2020 is a leap year, and includes an
extra calendar day, February 29, 2020.
For each year of the lease that you deduct
lease payments, you must reduce your deduc-
tion by the inclusion amount figured for that
year.
Leased car changed from business to per-
sonal use. If you lease a car for business use
and, in a later year, change it to personal use,
follow the rules explained earlier under Figuring
the inclusion amount. For the tax year in which
you stop using the car for business, use the dol-
lar amount for the previous tax year. Prorate the
dollar amount for the number of days in the
lease term that fall within the tax year.
Example. On August 16, 2016, Will leased
a car with a fair market value of $38,500 for 3
years. He used the car exclusively in his own
data processing business. On November 5,
2017, Will closed his business and went to work
for a company where he isn’t required to use a
car for business. Using Appendix A-4, Will fig-
ured his inclusion amount for 2016 and 2017 as
shown in the following table and reduced his
deductions for lease payments by those
amounts.
Tax
year
Dollar
amount Proration
Business
use
Inclusion
amount
2016 $41 138/366 100% $15
2017 89 309/365 100% 75
Leased car changed from personal to busi-
ness use. If you lease a car for personal use
and, in a later year, change it to business use,
you must determine the car's fair market value
on the date of conversion. Then figure the inclu-
sion amount using the rules explained earlier
under Figuring the inclusion amount. Use the
fair market value on the date of conversion.
Example. In March 2015, Janice leased a
car for 4 years for personal use. On June 1,
2017, she started working as a self-employed
advertising consultant and started using the
leased car for business purposes. Her records
show that her business use for June 1 through
December 31 was 60%. To figure her inclusion
amount for 2017, Janice obtained an appraisal
from an independent car leasing company that
showed the fair market value of her 2015 car on
June 1, 2017, was $21,650. Using Appendix
A-5, Janice figured her inclusion amount for
2017 as shown in the following table.
Tax
year
Dollar
amount Proration
Business
use
Inclusion
amount
2017 $11 214/365 60% $4
Reporting inclusion amounts. For informa-
tion on reporting inclusion amounts, employees
should see Car rentals under Completing
Forms 2106 and 2106-EZ in chapter 6. Sole
proprietors should see the Instructions for
Schedule C (Form 1040) and farmers should
see the Instructions for Schedule F (Form
1040).
Disposition of a Car
If you dispose of your car, you may have a taxa-
ble gain or a deductible loss. The portion of any
gain that is due to depreciation (including any
section 179 deduction, clean-fuel vehicle de-
duction (for vehicles placed in service before
January 1, 2006), and special depreciation al-
lowance) that you claimed on the car will be
treated as ordinary income. However, you may
not have to recognize a gain or loss if you dis-
pose of the car because of a casualty, theft, or
trade-in.
This section gives some general information
about dispositions of cars. For information on
how to report the disposition of your car, see
Pub. 544.
Casualty or theft. For a casualty or theft, a
gain results when you receive insurance or
other reimbursement that is more than your ad-
justed basis in your car. If you then spend all of
the proceeds to acquire replacement property
(a new car or repairs to the old car) within a
specified period of time, you don’t recognize
any gain. Your basis in the replacement prop-
erty is its cost minus any gain that isn’t recog-
nized. See Pub. 547 for more information.
Trade-in. When you trade in an old car for a
new one, the transaction is considered a
like-kind exchange. Generally, no gain or loss is
recognized. (For exceptions, see chapter 1 of
Pub. 544.) In a trade-in situation, your basis in
the new property is generally your adjusted ba-
sis in the old property plus any additional
amount you pay. (See Unadjusted basis, ear-
lier.)
Depreciation adjustment when you used
the standard mileage rate. If you used the
standard mileage rate for the business use of
your car, depreciation was included in that rate.
The rate of depreciation that was allowed in the
standard mileage rate is shown in the Rate of
Depreciation Allowed in Standard Mileage Rate
table, later. You must reduce your basis in your
car (but not below zero) by the amount of this
depreciation.
If your basis is reduced to zero (but not be-
low zero) through the use of the standard mile-
age rate, and you continue to use your car for
business, no adjustment (reduction) to the
standard mileage rate is necessary. Use the full
standard mileage rate (53.5 cents (0.535) per
mile for 2017) for business miles driven.
These rates don’t apply for any year in
which the actual expenses method was
used.
Rate of Depreciation Allowed in
Standard Mileage Rate
Year(s) Depreciation .
Rate per Mile
2017 $0.25
2015–2016 0.24
2014 0.22
2012–2013 0.23
2011 0.22
2010 0.23
2008–2009 0.21
2007 0.19
2005–2006 0.17
2003–2004 0.16
2001–2002 0.15
2000 0.14
Example. In 2012, you bought a car for ex-
clusive use in your business. The car cost
$22,500. From 2012 through 2017, you used
the standard mileage rate to figure your car ex-
pense deduction. You drove your car 14,100
miles in 2012, 16,300 miles in 2013, 15,600
miles in 2014, 16,700 miles in 2015, 15,100
miles in 2016, and 14,900 miles in 2017. The
depreciation portion of your car expense de-
duction is figured as follows.
Year Miles x
Rate
Depreciation
2012 14,100 × $0.23 $3,243
2013 16,300 × 0.23 3,749
2014 15,600 × 0.22 3,432
2015 16,700 × 0.24 4,008
2016 15,100 × 0.24 3,744
2017 14,900 × 0.25 3,725
Total depreciation $21,901
At the end of 2017, your adjusted basis in the
car is $599 ($22,500 − $21,901).
Depreciation deduction for the year of dis-
position. If you deduct actual car expenses
and you dispose of your car before the end of
its recovery period, you are allowed a reduced
depreciation deduction for the year of disposi-
tion.
To figure the reduced depreciation deduc-
tion for a car disposed of in 2017, first deter-
mine the depreciation deduction for the full year
using Table 4-1.TIP
Page 24 Chapter 4 Transportation
If you used a Date Placed in Service line for
Jan. 1–Sept. 30, you can deduct one-half of the
depreciation amount figured for the full year.
Figure your depreciation deduction for the full
year using the rules explained in this chapter
and deduct 50% of that amount with your other
actual car expenses.
If you used a Date Placed in Service line for
Oct. 1–Dec. 31, you can deduct a percentage of
the depreciation amount figured for the full year.
The percentage you use is determined by the
month you disposed of the car. Figure your de-
preciation deduction for the full year using the
rules explained in this chapter and multiply the
result by the percentage from the following ta-
ble for the month that you disposed of the car.
Month Percentage
Jan., Feb., March . . . . . . . . . . . . . 12.5%
April, May, June . . . . . . . . . . . . . . . 37.5%
July, Aug., Sept. . . . . . . . . . . . . . . 62.5%
Oct., Nov., Dec. . . . . . . . . . . . . . . . 87.5%
Don’t use this table if you are a fiscal
year filer. See Sale or Other Disposi-
tion Before the Recovery Period Ends
in chapter 4 of Pub. 946.
5.
Recordkeeping
If you deduct travel, entertainment, gift, or trans-
portation expenses, you must be able to prove
(substantiate) certain elements of expense.
This chapter discusses the records you need to
keep to prove these expenses.
If you keep timely and accurate re-
cords, you will have support to show
the IRS if your tax return is ever exam-
ined. You will also have proof of expenses that
your employer may require if you are reim-
bursed under an accountable plan. These plans
are discussed in chapter 6 under Reimburse-
ments.
How To Prove Expenses
Table 5-1 is a summary of records you need to
prove each expense discussed in this publica-
tion. You must be able to prove the elements
listed across the top portion of the chart. You
prove them by having the information and re-
ceipts (where needed) for the expenses listed
in the first column.
You can’t deduct amounts that you ap-
proximate or estimate.
You should keep adequate records to prove
your expenses or have sufficient evidence that
will support your own statement. You must gen-
erally prepare a written record for it to beCAUTION
!RECORDSCAUTION
!
considered adequate. This is because written
evidence is more reliable than oral evidence
alone. However, if you prepare a record on a
computer, it is considered an adequate record.
What Are Adequate
Records?
You should keep the proof you need in an ac-
count book, diary, log, statement of expense,
trip sheets, or similar record. You should also
keep documentary evidence that, together with
your record, will support each element of an ex-
pense.
Documentary evidence. You generally must
have documentary evidence, such as receipts,
canceled checks, or bills, to support your ex-
penses.
Exception. Documentary evidence isn’t
needed if any of the following conditions apply.
You have meals or lodging expenses while
traveling away from home for which you
account to your employer under an ac-
countable plan, and you use a per diem al-
lowance method that includes meals
and/or lodging. (Accountable plans and
per diem allowances are discussed in
chapter 6.)
Your expense, other than lodging, is less
than $75.
You have a transportation expense for
which a receipt isn’t readily available.
Adequate evidence. Documentary evi-
dence ordinarily will be considered adequate if
it shows the amount, date, place, and essential
character of the expense.
For example, a hotel receipt is enough to
support expenses for business travel if it has all
of the following information.
The name and location of the hotel.
The dates you stayed there.
Separate amounts for charges such as
lodging, meals, and telephone calls.
A restaurant receipt is enough to prove an
expense for a business meal if it has all of the
following information.
The name and location of the restaurant.
The number of people served.
The date and amount of the expense.
If a charge is made for items other than food
and beverages, the receipt must show that this
is the case.
Canceled check. A canceled check, to-
gether with a bill from the payee, ordinarily es-
tablishes the cost. However, a canceled check
by itself doesn’t prove a business expense with-
out other evidence to show that it was for a
business purpose.
Duplicate information. You don‘t have to re-
cord information in your account book or other
record that duplicates information shown on a
receipt as long as your records and receipts
complement each other in an orderly manner.
You don’t have to record amounts your em-
ployer pays directly for any ticket or other travel
item. However, if you charge these items to
your employer, through a credit card or other-
wise, you must keep a record of the amounts
you spend.
Timely kept records. You should record the
elements of an expense or of a business use at
or near the time of the expense or use and sup-
port it with sufficient documentary evidence. A
timely kept record has more value than a state-
ment prepared later when generally there is a
lack of accurate recall.
You don’t need to write down the elements
of every expense on the day of the expense. If
you maintain a log on a weekly basis that ac-
counts for use during the week, the log is con-
sidered a timely kept record.
If you give your employer, client, or cus-
tomer an expense account statement, it can
also be considered a timely kept record. This is
true if you copy it from your account book, diary,
log, statement of expense, trip sheets, or similar
record.
Proving business purpose. You must gener-
ally provide a written statement of the business
purpose of an expense. However, the degree of
proof varies according to the circumstances in
each case. If the business purpose of an ex-
pense is clear from the surrounding circumstan-
ces, then you don’t need to give a written ex-
planation.
Example. If you are a sales representative
who calls on customers on an established sales
route, you don’t have to give a written explana-
tion of the business purpose for traveling that
route. You can satisfy the requirements by re-
cording the length of the delivery route once,
the date of each trip at or near the time of the
trips, and the total miles you drove the car dur-
ing the tax year. You could also establish the
date of each trip with a receipt, record of deliv-
ery, or other documentary evidence.
Confidential information. You don’t need to
put confidential information relating to an ele-
ment of a deductible expense (such as the
place, business purpose, or business relation-
ship) in your account book, diary, or other re-
cord. However, you do have to record the infor-
mation elsewhere at or near the time of the
expense and have it available to fully prove that
element of the expense.
What if I Have Incomplete
Records?
If you don’t have complete records to prove an
element of an expense, then you must prove
the element with:
Your own written or oral statement contain-
ing specific information about the element,
and
Other supporting evidence that is sufficient
to establish the element.
If the element is the description of a gift, or
the cost, time, place, or date of an expense, the
supporting evidence must be either direct evi-
dence or documentary evidence. Direct evi-
dence can be written statements or the oral tes-
timony of your guests or other witnesses setting
forth detailed information about the element.
Chapter 5 Recordkeeping Page 25
Documentary evidence can be receipts, paid
bills, or similar evidence.
If the element is either the business relation-
ship of your guests or the business purpose of
the amount spent, the supporting evidence can
be circumstantial rather than direct. For exam-
ple, the nature of your work, such as making de-
liveries, provides circumstantial evidence of the
use of your car for business purposes. Invoices
of deliveries establish when you used the car
for business.
Sampling. You can keep an adequate record
for parts of a tax year and use that record to
prove the amount of business or investment use
for the entire year. You must demonstrate by
other evidence that the periods for which an ad-
equate record is kept are representative of the
use throughout the tax year.
Example. You use your car to visit the offi-
ces of clients, meet with suppliers and other
subcontractors, and pick up and deliver items to
clients. There is no other business use of the
car, but you and your family use the car for
personal purposes. You keep adequate records
during the first week of each month that show
that 75% of the use of the car is for business.
Invoices and bills show that your business use
continues at the same rate during the later
weeks of each month. Your weekly records are
representative of the use of the car each month
and are sufficient evidence to support the per-
centage of business use for the year.
Exceptional circumstances. You can satisfy
the substantiation requirements with other evi-
dence if, because of the nature of the situation
in which an expense is made, you can’t get a
receipt. This applies if all the following are true.
You were unable to obtain evidence for an
element of the expense or use that com-
pletely satisfies the requirements ex-
plained earlier under What Are Adequate
Records.
You are unable to obtain evidence for an
element that completely satisfies the two
rules listed earlier under What if I Have In-
complete Records.
You have presented other evidence for the
element that is the best proof possible un-
der the circumstances.
Destroyed records. If you can’t produce a re-
ceipt because of reasons beyond your control,
you can prove a deduction by reconstructing
your records or expenses. Reasons beyond
your control include fire, flood, and other casu-
alties.
Separating and Combining
Expenses
This section explains when expenses must be
kept separate and when expenses can be com-
bined.
Separating expenses. Each separate pay-
ment is generally considered a separate ex-
pense. For example, if you entertain a customer
or client at dinner and then go to the theater, the
dinner expense and the cost of the theater tick-
ets are two separate expenses. You must re-
cord them separately in your records.
Table 5-1. How To Prove Certain Business Expenses
IF you have
expenses for . .
THEN you must keep records that show details of the following elements . . .
Amount Time Place or
Description
Business Purpose
Business Relationship
Travel Cost of each separate
expense for travel,
lodging, and meals.
Incidental expenses
may be totaled in
reasonable categories
such as taxis, fees and
tips, etc.
Dates you left
and returned
for each trip
and number
of days spent
on business.
Destination or area of
your travel (name of
city, town, or other
designation).
Purpose: Business purpose for the expense or the
business benefit gained or expected to be gained.
Relationship: N/A
Entertainment Cost of each separate
expense. Incidental
expenses such as taxis,
telephones, etc., may be
totaled on a daily basis.
Date of
entertainment.
(Also see
Business
Purpose.)
Name and address or
location of place of
entertainment. Type
of entertainment if not
otherwise apparent.
(Also see Business
Purpose.)
Purpose: Business purpose for the expense or the
business benefit gained or expected to be gained.
For entertainment, the nature of the business
discussion or activity. If the entertainment was directly
before or after a business discussion: the date, place,
nature, and duration of the business discussion, and
the identities of the persons who took part in both the
business discussion and the entertainment activity.
Relationship: Occupations or other information (such
as names, titles, or other designations) about the
recipients that shows their business relationship to you.
For entertainment, you must also prove that you or your
employee was present if the entertainment was a
business meal.
Gifts Cost of the gift. Date of the
gift.
Description of the gift.
Transportation Cost of each separate
expense. For car
expenses, the cost of
the car and any
improvements, the date
you started using it for
business, the mileage
for each business use,
and the total miles for
the year.
Date of the
expense. For
car
expenses,
the date of
the use of the
car.
Your business
destination.
Purpose: Business purpose for the expense.
Relationship: N/A
Page 26 Chapter 5 Recordkeeping
Season or series tickets. If you buy sea-
son or series tickets for business use, you must
treat each ticket in the series as a separate
item. To determine the cost of individual tickets,
divide the total cost (but not more than face
value) by the number of games or performan-
ces in the series. You must keep records to
show whether you use each ticket as a gift or
entertainment. Also, you must be able to prove
the cost of nonluxury box seat tickets if you rent
a skybox or other private luxury box for more
than one event. See Entertainment tickets in
chapter 2.
Combining items. You can make one daily
entry in your record for reasonable categories of
expenses. Examples are taxi fares, telephone
calls, or other incidental travel costs. Meals
should be in a separate category. You can in-
clude tips for meal-related services with the
costs of the meals.
Expenses of a similar nature occurring dur-
ing the course of a single event are considered
a single expense. For example, if during enter-
tainment at a cocktail lounge, you pay sepa-
rately for each serving of refreshments, the total
expense for the refreshments is treated as a
single expense.
Car expenses. You can account for sev-
eral uses of your car that can be considered
part of a single use, such as a round trip or un-
interrupted business use, with a single record.
Minimal personal use, such as a stop for lunch
on the way between two business stops, isn’t
an interruption of business use.
Example. You make deliveries at several
different locations on a route that begins and
ends at your employer's business premises and
that includes a stop at the business premises
between two deliveries. You can account for
these using a single record of miles driven.
Gift expenses. You don’t always have to
record the name of each recipient of a gift. A
general listing will be enough if it is evident that
you aren’t trying to avoid the $25 annual limit on
the amount you can deduct for gifts to any one
person. For example, if you buy a large number
of tickets to local high school basketball games
and give one or two tickets to each of many
customers, it is usually enough to record a gen-
eral description of the recipients.
Allocating total cost. If you can prove the to-
tal cost of travel or entertainment but you can’t
prove how much it cost for each person who
participated in the event, you may have to allo-
cate the total cost among you and your guests
on a pro rata basis. To do so, you must estab-
lish the number of persons who participated in
the event.
An allocation would be needed, for example,
if you didn’t have a business relationship with all
of your guests. See Allocating between busi-
ness and nonbusiness in chapter 2.
If your return is examined. If your return is
examined, you may have to provide additional
information to the IRS. This information could
be needed to clarify or to establish the accuracy
or reliability of information contained in your re-
cords, statements, testimony, or documentary
evidence before a deduction is allowed.
How Long To Keep
Records and Receipts
You must keep records as long as they may be
needed for the administration of any provision
of the Internal Revenue Code. Generally, this
means you must keep records that support your
deduction (or an item of income) for 3 years
from the date you file the income tax return on
which the deduction is claimed. A return filed
early is considered filed on the due date. For a
more complete explanation of how long to keep
records, see Pub. 583, Starting a Business and
Keeping Records.
You must keep records of the business use
of your car for each year of the recovery period.
See More-than-50%-use test in chapter 4 under
Depreciation Deduction.
Reimbursed for expenses. Employees who
give their records and documentation to their
employers and are reimbursed for their expen-
ses generally don’t have to keep copies of this
information. However, you may have to prove
your expenses if any of the following conditions
apply.
You claim deductions for expenses that
are more than reimbursements.
Your expenses are reimbursed under a
nonaccountable plan.
Your employer doesn’t use adequate ac-
counting procedures to verify expense ac-
counts.
You are related to your employer as de-
fined under Per Diem and Car Allowances
in chapter 6.
Reimbursements, adequate accounting, and
nonaccountable plans are discussed in chap-
ter 6.
Examples of Records
Table 5-2 and Table 5-3 are examples of work-
sheets which can be used for tracking business
expenses.
6.
How To Report
This chapter explains where and how to report
the expenses discussed in this publication. It
discusses reimbursements and how to treat
them under accountable and nonaccountable
plans. It also explains rules for independent
contractors and clients, fee-basis officials, cer-
tain performing artists, Armed Forces reserv-
ists, and certain disabled employees. The chap-
ter ends with illustrations of how to report travel,
entertainment, gift, and car expenses on Forms
2106 and 2106-EZ.
Where To Report
This section provides general information on
where to report the expenses discussed in this
publication.
Self-employed. You must report your income
and expenses on Schedule C (Form 1040) or
Schedule C-EZ (Form 1040) if you are a sole
proprietor, or on Schedule F (Form 1040) if you
are a farmer. You don’t use Form 2106 or
2106-EZ.
Table 5-2. Daily Business Mileage and Expense Log Name:
Odometer Readings Expenses
Date
Destination
(City, Town, or Area) Business Purpose Start Stop
Miles
this trip
Type
(Gas, oil, tolls, etc.) Amount
Weekly
Total
Total
Year-to-Date
Chapter 6 How To Report Page 27
THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM
Table 5-3. Weekly Traveling Expense and Entertainment Record
From: To: Name:
Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total
1. Travel Expenses:
Airlines
Excess Baggage
Bus – Train
Cab and Limousine
Tips
Porter
2. Meals and Lodging:
Breakfast
Lunch
Dinner
Hotel and Motel
(Detail in Schedule B)
3. Entertainment
(Detail in Schedule C)
4. Other Expenses:
Postage
Telephone & Telegraph
Stationery & Printing
Stenographer
Sample Room
Advertising
Assistant(s)
Trade Shows
5. Car Expenses: (List all car expenses—the division between business and personal expenses may be made at the end of the year.)
(Detail mileage in Schedule A.)
Gas, oil, lube, wash
Repairs, parts
Tires, supplies
Parking fees, tolls
6. Other (Identify)
Total
Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75.00 or more.
Schedule A—Car
Mileage: End
Start
Total
Business Mileage
Schedule B—Lodging
Hotel or Motel Name
City
Schedule C—Entertainment
Date Item Place Amount Business Purpose Business Relationship
WEEKLY REIMBURSEMENTS:
Travel and transportation expenses . . . . . . . .
Other reimbursements . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page 28 Chapter 6 How To Report
If you claim car or truck expenses, you must
provide certain information on the use of your
vehicle. You provide this information on Sched-
ule C (Form 1040), Schedule C-EZ (Form
1040), or Form 4562.
If you file Schedule C (Form 1040):
Report your travel expenses, except
meals, on line 24a;
Report your deductible meals (actual cost
or standard meal allowance) and entertain-
ment on line 24b;
Report your gift expenses and transporta-
tion expenses, other than car expenses,
on line 27a; and
Report your car expenses on line 9. Com-
plete Part IV of the form unless you have to
file Form 4562 for depreciation or amorti-
zation.
If you file Schedule C-EZ (Form 1040), re-
port the total of all business expenses on Part II,
line 2. You can include only 50% of your meals
and entertainment in that total. If you include car
expenses, you must also complete Part III of the
form.
If you file Schedule F (Form 1040), do the
following.
Report your car expenses on line 10. At-
tach Form 4562 and provide information
on the use of your car in Part V of Form
4562.
Report all other business expenses dis-
cussed in this publication on line 32. You
can only include 50% of your meals and
entertainment on that line.
See your form instructions for more information
on how to complete your tax return.
Both self-employed and an employee. If you
are both self-employed and an employee, you
must keep separate records for each business
activity. Report your business expenses for
self-employment on Schedule C (Form 1040),
Schedule C-EZ (Form 1040), or Schedule F
(Form 1040), as discussed earlier. Report your
business expenses for your work as an em-
ployee on Form 2106 or 2106-EZ, as discussed
next.
Employees. If you are an employee, you gen-
erally must complete Form 2106 to deduct your
travel, transportation, and entertainment expen-
ses. However, you can use the shorter Form
2106-EZ instead of Form 2106 if you meet all of
the following conditions.
You are an employee deducting expenses
attributable to your job.
You weren’t reimbursed by your employer
for your expenses (amounts included in
box 1 of your Form W-2 aren’t considered
reimbursements).
If you claim car expenses, you use the
standard mileage rate.
For more information on how to report your
expenses on Forms 2106 and 2106-EZ, see
Completing Forms 2106 and 2106-EZ, later.
Gifts. If you didn’t receive any reimburse-
ments (or the reimbursements were all included
in box 1 of your Form W-2), the only business
expense you are claiming is for gifts, and the
special rules discussed later don’t apply to you,
don’t complete Form 2106 or 2106-EZ. Instead,
claim the amount of your deductible gifts di-
rectly on line 21 of Schedule A (Form 1040).
Statutory employees. If you received a
Form W-2 and the “Statutory employee” box in
box 13 was checked, report your income and
expenses related to that income on Schedule C
(Form 1040) or Schedule C-EZ (Form 1040).
Don’t complete Form 2106 or 2106-EZ.
Statutory employees include full-time life in-
surance salespersons, certain agent or com-
mission drivers, traveling salespersons, and
certain homeworkers.
If you are entitled to a reimbursement
from your employer but you don’t claim
it, you can’t claim a deduction for the
expenses to which that unclaimed reimburse-
ment applies.
Reimbursement for personal expenses. If
your employer reimburses you for nondeducti-
ble personal expenses, such as for vacation
trips, your employer must report the reimburse-
ment as wage income in box 1 of your Form
W-2. You can’t deduct personal expenses.
Income-producing property. If you have
travel or transportation expenses related to in-
come-producing property, report your deducti-
ble expenses on the form appropriate for that
activity.
For example, if you have rental real estate
income and expenses, report your expenses on
Schedule E (Form 1040), Supplemental Income
and Loss. See Pub. 527, Residential Rental
Property, for more information on the rental of
real estate. If you have deductible invest-
ment-related transportation expenses, report
them on Schedule A (Form 1040), line 23.
Vehicle Provided by
Your Employer
If your employer provides you with a car, you
may be able to deduct the actual expenses of
operating that car for business purposes. The
amount you can deduct depends on the amount
that your employer included in your income and
the business and personal miles you drove dur-
ing the year. You can’t use the standard mile-
age rate.
Value reported on Form W-2. Your employer
can figure and report either the actual value of
your personal use of the car or the value of the
car as if you used it only for personal purposes
(100% income inclusion). Your employer must
separately state the amount if 100% of the an-
nual lease value was included in your income. If
you are unsure of the amount included on your
Form W-2, ask your employer.
Full value included in your income. You can
deduct the value of the business use of an em-
ployer-provided car if your employer reported
100% of the value of the car in your income. On
your 2017 Form W-2, the amount of the value
will be included in box 1, Wages, tips, other
compensation; and box 14.CAUTION
!
To claim your expenses, complete Form
2106, Part II, Sections A and C. Enter your ac-
tual expenses on line 23 of Section C and in-
clude the entire value of the employer-provided
car on line 25. Complete the rest of the form.
Less than full value included in your in-
come. If less than the full annual lease value of
the car was included on your Form W-2, this
means that your Form W-2 only includes the
value of your personal use of the car. Don’t en-
ter this value on your Form 2106 because it isn’t
deductible.
If you paid any actual costs (that your em-
ployer didn’t provide or reimburse you for) to
operate the car, you can deduct the business
portion of those costs. Examples of costs that
you may have are gas, oil, and repairs. Com-
plete Form 2106, Part II, Sections A and C. En-
ter your actual costs on line 23 of Section C and
leave line 25 blank. Complete the rest of the
form.
Reimbursements
This section explains what to do when you re-
ceive an advance or are reimbursed for any of
the employee business expenses discussed in
this publication.
If you received an advance, allowance, or
reimbursement for your expenses, how you re-
port this amount and your expenses depends
on whether your employer reimbursed you un-
der an accountable plan or a nonaccountable
plan.
This section explains the two types of plans,
how per diem and car allowances simplify prov-
ing the amount of your expenses, and the tax
treatment of your reimbursements and expen-
ses. It also covers rules for independent con-
tractors.
No reimbursement. You aren’t reimbursed or
given an allowance for your expenses if you are
paid a salary or commission with the under-
standing that you will pay your own expenses.
In this situation, you have no reimbursement or
allowance arrangement, and you don’t have to
read this section on reimbursements. Instead,
see Completing Forms 2106 and 2106-EZ,
later, for information on completing your tax re-
turn.
Reimbursement, allowance, or advance. A
reimbursement or other expense allowance ar-
rangement is a system or plan that an employer
uses to pay, substantiate, and recover the ex-
penses, advances, reimbursements, and
amounts charged to the employer for employee
business expenses. Arrangements include per
diem and car allowances.
A per diem allowance is a fixed amount of
daily reimbursement your employer gives you
for your lodging, meals, and incidental expen-
ses when you are away from home on busi-
ness. (The term “incidental expenses” is de-
fined in chapter 1 under Standard Meal
Allowance.) A car allowance is an amount your
employer gives you for the business use of your
car.
Chapter 6 How To Report Page 29
Your employer should tell you what method
of reimbursement is used and what records you
must provide.
Employers. If you are an employer and you re-
imburse employee business expenses, how
you treat this reimbursement on your employ-
ee's Form W-2 depends in part on whether you
have an accountable plan. Reimbursements
treated as paid under an accountable plan, as
explained next, aren’t reported as pay. Reim-
bursements treated as paid under nonaccount-
able plans, as explained later, are reported as
pay. See Pub. 15 (Circular E), Employer's Tax
Guide, for information on employee pay.
Accountable Plans
To be an accountable plan, your employer's re-
imbursement or allowance arrangement must
include all of the following rules.
1. Your expenses must have a business con-
nection—that is, you must have paid or in-
curred deductible expenses while per-
forming services as an employee of your
employer.
2. You must adequately account to your em-
ployer for these expenses within a reason-
able period of time.
3. You must return any excess reimburse-
ment or allowance within a reasonable pe-
riod of time.
Adequate accounting and returning excess
reimbursements are discussed later.
An excess reimbursement or allowance is
any amount you are paid that is more than the
business-related expenses that you adequately
accounted for to your employer.
Reasonable period of time. The definition
of reasonable period of time depends on the
facts and circumstances of your situation. How-
ever, regardless of the facts and circumstances
of your situation, actions that take place within
the times specified in the following list will be
treated as taking place within a reasonable pe-
riod of time.
You receive an advance within 30 days of
the time you have an expense.
You adequately account for your expenses
within 60 days after they were paid or in-
curred.
You return any excess reimbursement
within 120 days after the expense was paid
or incurred.
You are given a periodic statement (at
least quarterly) that asks you to either re-
turn or adequately account for outstanding
advances and you comply within 120 days
of the statement.
Employee meets accountable plan rules. If
you meet the three rules for accountable plans,
your employer shouldn’t include any reimburse-
ments in your income in box 1 of your Form
W-2. If your expenses equal your reimburse-
ments, you don’t complete Form 2106. You
have no deduction since your expenses and re-
imbursement are equal.
If your employer included reimburse-
ments in box 1 of your Form W-2 and
you meet all the rules for accountable
plans, ask your employer for a corrected Form
W-2.
Accountable plan rules not met. Even
though you are reimbursed under an accounta-
ble plan, some of your expenses may not meet
all three rules. All reimbursements that fail to
meet all three rules for accountable plans are
generally treated as having been reimbursed
under a nonaccountable plan (discussed later).
Failure to return excess reimburse-
ments. If you are reimbursed under an ac-
countable plan, but you fail to return, within a
reasonable time, any amounts in excess of the
substantiated amounts, the amounts paid in ex-
cess of the substantiated expenses are treated
as paid under a nonaccountable plan. See Rea-
sonable period of time, earlier, and Returning
Excess Reimbursements, later.
Reimbursement of nondeductible ex-
penses. You may be reimbursed under your
employer's accountable plan for expenses rela-
ted to that employer's business, some of which
are deductible as employee business expenses
and some of which aren’t deductible. The reim-
bursements you receive for the nondeductible
expenses don’t meet rule (1) for accountable
plans, and they are treated as paid under a non-
accountable plan.
Example. Your employer's plan reimburses
you for travel expenses while away from home
on business and also for meals when you work
late at the office, even though you aren’t away
from home. The part of the arrangement that re-
imburses you for the nondeductible meals when
you work late at the office is treated as paid un-
der a nonaccountable plan.
The employer makes the decision
whether to reimburse employees under
an accountable plan or a nonaccounta-
ble plan. If you are an employee who receives
payments under a nonaccountable plan, you
can’t convert these amounts to payments under
an accountable plan by voluntarily accounting
to your employer for the expenses and voluntar-
ily returning excess reimbursements to the em-
ployer.
Adequate Accounting
One of the rules for an accountable plan is that
you must adequately account to your employer
for your expenses. You adequately account by
giving your employer a statement of expense,
an account book, a diary, or a similar record in
which you entered each expense at or near the
time you had it, along with documentary evi-
dence (such as receipts) of your travel, mile-
age, and other employee business expenses.
(See Table 5-1 in chapter 5 for details you need
to enter in your record and documents you
need to prove certain expenses.) A per diem or
car allowance satisfies the adequate account-
ing requirement under certain conditions. See
Per Diem and Car Allowances, later.TIPTIP
You must account for all amounts you re-
ceived from your employer during the year as
advances, reimbursements, or allowances. This
includes amounts you charged to your em-
ployer by credit card or other method. You must
give your employer the same type of records
and supporting information that you would have
to give to the IRS if the IRS questioned a de-
duction on your return. You must pay back the
amount of any reimbursement or other expense
allowance for which you don’t adequately ac-
count or that is more than the amount for which
you accounted.
Per Diem and Car Allowances
If your employer reimburses you for your expen-
ses using a per diem or a car allowance, you
can generally use the allowance as proof for the
amount of your expenses. A per diem or car al-
lowance satisfies the adequate accounting re-
quirements for the amount of your expenses
only if all the following conditions apply.
Your employer reasonably limits payments
of your expenses to those that are ordinary
and necessary in the conduct of the trade
or business.
The allowance is similar in form to and not
more than the federal rate (defined later).
You prove the time (dates), place, and
business purpose of your expenses to your
employer (as explained in Table 5-1) within
a reasonable period of time.
You aren’t related to your employer (as de-
fined next). If you are related to your em-
ployer, you must be able to prove your ex-
penses to the IRS even if you have already
adequately accounted to your employer
and returned any excess reimbursement.
If the IRS finds that an employer's travel allow-
ance practices are not based on reasonably ac-
curate estimates of travel costs (including rec-
ognition of cost differences in different areas for
per diem amounts), you won’t be considered to
have accounted to your employer. In this case,
you must be able to prove your expenses to the
IRS.
Related to employer. You are related to your
employer if:
1. Your employer is your brother or sister,
half brother or half sister, spouse, ances-
tor, or lineal descendant;
2. Your employer is a corporation in which
you own, directly or indirectly, more than
10% in value of the outstanding stock; or
3. Certain relationships (such as grantor, fi-
duciary, or beneficiary) exist between you,
a trust, and your employer.
You may be considered to indirectly own stock,
for purposes of (2), if you have an interest in a
corporation, partnership, estate, or trust that
owns the stock or if a member of your family or
your partner owns the stock.
The federal rate. The federal rate can be fig-
ured using any one of the following methods.
1. For per diem amounts:
a. The regular federal per diem rate.
b. The standard meal allowance.
Page 30 Chapter 6 How To Report
c. The high-low rate.
2. For car expenses:
a. The standard mileage rate.
b. A fixed and variable rate (FAVR).
For per diem amounts, use the rate in
effect for the area where you stop for
sleep or rest.
Regular federal per diem rate. The regu-
lar federal per diem rate is the highest amount
that the federal government will pay to its em-
ployees for lodging, meals, and incidental ex-
penses (or meals and incidental expenses only)
while they are traveling away from home in a
particular area. The rates are different for differ-
ent locations. Your employer should have these
rates available. You can also find federal per
diem rates at GSA.gov/Perdiem.
The standard meal allowance. The
standard meal allowance is the federal M&IE
rate. For travel in 2017, the rate for most small
localities in the United States is $51 a day. Most
major cities and many other localities qualify for
higher rates. You can find this information at
GSA.gov/Perdiem.
You receive an allowance only for meals
and incidental expenses when your employer
does one of the following.
Provides you with lodging (furnishes it in
kind).
Reimburses you, based on your receipts,
for the actual cost of your lodging.
Pays the hotel, motel, etc., directly for your
lodging.
Doesn’t have a reasonable belief that you
had (or will have) lodging expenses, such
as when you stay with friends or relatives
or sleep in the cab of your truck.
Figures the allowance on a basis similar to
that used in figuring your compensation,
such as number of hours worked or miles
traveled.
High-low rate. This is a simplified method
of figuring the federal per diem rate for travel
within the continental United States. It elimi-
nates the need to keep a current list of the per
diem rates for each city.
Under the high-low method, the per diem
amount for travel during January through Sep-
tember of 2017 is $282 (including $68 for M&IE)
for certain high-cost locations. All other areas
have a per diem amount of $189 (including $57
for M&IE). For more information, see Notice
2016-58, which can be found at IRS.gov/irb/
2016-41_IRB/ar06.html.
Effective October 1, 2017, the per diem
rate for certain high-cost locations in-
creased to $284 (including $68 for
M&IE). The rate for all other locations increased
to $191 (including $57 for M&IE). Employers
who didn’t use the high-low method during the
first 9 months of 2017 can’t begin to use it be-
fore 2018. For more information, see Notice
2017-54, which can be found at IRS.gov/irb/
2017-42_IRB/ar06.html, and Rev. Proc.
2011-47 at IRS.gov/irb/2011-42_IRB/ar12.html.
Prorating the standard meal allowance
on partial days of travel. The standard meal
allowance is for a full 24-hour day of travel. IfTIPCAUTION
!
you travel for part of a day, such as on the days
you depart and return, you must prorate the
full-day M&IE rate. This rule also applies if your
employer uses the regular federal per diem rate
or the high-low rate.
You can use either of the following methods
to figure the federal M&IE for that day.
1. Method 1:
a. For the day you depart, add 3 4 of the
standard meal allowance amount for
that day.
b. For the day you return, add 3 4 of the
standard meal allowance amount for
the preceding day.
2. Method 2: Prorate the standard meal al-
lowance using any method you consis-
tently apply in accordance with reasonable
business practice. For example, an em-
ployer can treat 2 full days of per diem
(that includes M&IE) paid for travel away
from home from 9 a.m. of one day to 5
p.m. of the next day as being no more than
the federal rate. This is true even though a
federal employee would be limited to a re-
imbursement of M&IE for only 11 2 days of
the federal M&IE rate.
The standard mileage rate. This is a set
rate per mile that you can use to figure your de-
ductible car expenses. For 2017, the standard
mileage rate for the cost of operating your car
for business use is 53.5 cents (0.535) per mile.
Fixed and variable rate (FAVR). This is
an allowance your employer may use to reim-
burse your car expenses. Under this method,
your employer pays an allowance that includes
a combination of payments covering fixed and
variable costs, such as a cents-per-mile rate to
cover your variable operating costs (such as
gas, oil, etc.) plus a flat amount to cover your
fixed costs (such as depreciation (or lease pay-
ments), insurance, etc.). If your employer choo-
ses to use this method, your employer will re-
quest the necessary records from you.
Reporting your expenses with a per diem or
car allowance. If your reimbursement is in the
form of an allowance received under an ac-
countable plan, the following facts affect your
reporting.
The federal rate.
Whether the allowance or your actual ex-
penses were more than the federal rate.
The following discussions explain where to re-
port your expenses depending upon how the
amount of your allowance compares to the fed-
eral rate.
Allowance less than or equal to the fed-
eral rate. If your allowance is less than or
equal to the federal rate, the allowance won’t be
included in box 1 of your Form W-2. You don’t
need to report the related expenses or the al-
lowance on your return if your expenses are
equal to or less than the allowance.
However, if your actual expenses are more
than your allowance, you can complete Form
2106 and deduct the excess amount on Sched-
ule A (Form 1040). If you are using actual ex-
penses, you must be able to prove to the IRS
the total amount of your expenses and reim-
bursements for the entire year. If you are using
the standard meal allowance or the standard
mileage rate, you don’t have to prove that
amount.
Example 1. In April, Jeremy takes a 2-day
business trip to Denver. The federal rate for
Denver is $247 ($178 lodging + $69 M&IE) per
day. As required by his employer's accountable
plan, he accounts for the time (dates), place,
and business purpose of the trip. His employer
reimburses him $247 a day ($494 total) for liv-
ing expenses. Jeremy's living expenses in Den-
ver aren’t more than $247 a day.
Jeremy's employer doesn’t include any of
the reimbursement on his Form W-2 and
Jeremy doesn’t deduct the expenses on his re-
turn.
Example 2. In June, Matt takes a 2-day
business trip to Boston. Matt's employer uses
the high-low method to reimburse employees.
Since Boston is a high-cost area, Matt is given
an advance of $282 ($214 lodging + $68 M&IE)
a day ($564 total) for his lodging, meals, and in-
cidental expenses. Matt's actual expenses to-
taled $700.
Since Matt's $700 of expenses are more
than his $564 advance, he includes the excess
expenses when he itemizes his deductions.
Matt completes Form 2106 (showing all of his
expenses and reimbursements). He must also
allocate his reimbursement between his meals
and other expenses as discussed later under
Completing Forms 2106 and 2106-EZ.
Example 3. Nicole drives 10,000 miles in
2017 for business. Under her employer's ac-
countable plan, she accounts for the time
(dates), place, and business purpose of each
trip. Her employer pays her a mileage allow-
ance of 40 cents (0.40) a mile.
Since Nicole's $5,350 expense figured un-
der the standard mileage rate (10,000 miles x
53.5 cents (0.535)) is more than her $4,000 re-
imbursement (10,000 miles × 40 cents (0.40)),
she itemizes her deductions to claim the excess
expense. Nicole completes Form 2106 (show-
ing all her expenses and reimbursements) and
enters $1,350 ($5,350 − $4,000) as an itemized
deduction.
Allowance more than the federal rate. If
your allowance is more than the federal rate,
your employer must include the allowance
amount up to the federal rate under code L in
box 12 of your Form W-2. This amount isn’t tax-
able. However, the excess allowance will be in-
cluded in box 1 of your Form W-2. You must re-
port this part of your allowance as if it were
wage income.
If your actual expenses are less than or
equal to the federal rate, you don’t complete
Form 2106 or claim any of your expenses on
your return.
However, if your actual expenses are more
than the federal rate, you can complete Form
2106 and deduct those excess expenses. You
must report on Form 2106 your reimbursements
up to the federal rate (as shown under code L in
box 12 of your Form W-2) and all your expen-
ses. You should be able to prove these
amounts to the IRS.
Example 1. Laura lives and works in Aus-
tin. In July, her employer sent her to
Chapter 6 How To Report Page 31
Albuquerque for 4 days on business. Laura's
employer paid the hotel directly for her lodging
and reimbursed Laura $65 a day ($260 total) for
meals and incidental expenses. Laura's actual
meal expenses weren’t more than the federal
rate for Albuquerque, which is $51 per day.
Her employer included the $56 that was
more than the federal rate (($65 − $51) × 4) in
box 1 of Laura's Form W-2. Her employer
shows $204 ($51 a day × 4) under code L in
box 12 of her Form W-2. This amount isn’t inclu-
ded in Laura's income. Laura doesn’t have to
complete Form 2106; however, she must in-
clude the $56 in her gross income as wages (by
reporting the total amount shown in box 1 of her
Form W-2).
Example 2. Joe also lives in Austin and
works for the same employer as Laura. In May,
the employer sent Joe to San Diego for 4 days
and paid the hotel directly for Joe's hotel bill.
The employer reimbursed Joe $75 a day for his
meals and incidental expenses. The federal
rate for San Diego is $64 a day.
Joe can prove that his actual meal expenses
totaled $380. His employer's accountable plan
won’t pay more than $75 a day for travel to San
Diego, so Joe doesn’t give his employer the re-
cords that prove that he actually spent $380.
However, he does account for the time, place,
and business purpose of the trip. This is Joe's
only business trip this year.
Joe was reimbursed $300 ($75 × 4 days),
which is $44 more than the federal rate of $256
($64 × 4 days). The employer includes the $44
as income on Joe's Form W-2 in box 1. The em-
ployer also enters $256 under code L in box 12
of Joe's Form W-2.
Joe completes Form 2106 to figure his de-
ductible expenses. He enters the total of his
actual expenses for the year ($380) on Form
2106. He also enters the reimbursements that
weren’t included in his income ($256). His total
deductible expense, before the 50% limit, is
$124. After he figures the 50% limit on his unre-
imbursed meals and entertainment, he will in-
clude the balance, $62, as an itemized deduc-
tion.
Example 3. Debbie drives 10,000 miles in
2017 for business. Under her employer's ac-
countable plan, she gets reimbursed 60 cents
(0.60) a mile, which is more than the standard
mileage rate. Her total reimbursement is
$6,000.
Debbie's employer must include the reim-
bursement amount up to the standard mileage
rate, $5,350 (10,000 × 53.5 cents (0.535)), un-
der code L in box 12 of her Form W-2. That
amount isn’t taxable. Her employer must also
include $650 ($6,000 − $5,350) in box 1 of her
Form W-2. This is the reimbursement that is
more than the standard mileage rate.
If Debbie's expenses are equal to or less
than the standard mileage rate, she wouldn’t
complete Form 2106. If her expenses are more
than the standard mileage rate, she would com-
plete Form 2106 and report her total expenses
and reimbursement (shown under code L in
box 12 of her Form W-2). She would then claim
the excess expenses as an itemized deduction.
Returning Excess
Reimbursements
Under an accountable plan, you are required to
return any excess reimbursement or other ex-
pense allowances for your business expenses
to the person paying the reimbursement or al-
lowance. Excess reimbursement means any
amount for which you didn’t adequately account
within a reasonable period of time. For exam-
ple, if you received a travel advance and you
didn’t spend all the money on business-related
expenses or you don’t have proof of all your ex-
penses, you have an excess reimbursement.
Adequate accounting and reasonable period
of time were discussed earlier in this chapter.
Travel advance. You receive a travel advance
if your employer provides you with an expense
allowance before you actually have the ex-
pense, and the allowance is reasonably expec-
ted to be no more than your expense. Under an
accountable plan, you are required to ade-
quately account to your employer for this ad-
vance and to return any excess within a reason-
able period of time.
If you don’t adequately account for or don't
return any excess advance within a reasonable
period of time, the amount you don’t account for
or return will be treated as having been paid un-
der a nonaccountable plan (discussed later).
Unproven amounts. If you don’t prove that
you actually traveled on each day for which you
received a per diem or car allowance (proving
the elements described in Table 5-1), you must
return this unproven amount of the travel ad-
vance within a reasonable period of time. If you
don’t do this, the unproven amount will be con-
sidered paid under a nonaccountable plan (dis-
cussed later).
Per diem allowance more than federal
rate. If your employer's accountable plan pays
you an allowance that is higher than the federal
rate, you don’t have to return the difference be-
tween the two rates for the period you can
prove business-related travel expenses. How-
ever, the difference will be reported as wages
on your Form W-2. This excess amount is con-
sidered paid under a nonaccountable plan (dis-
cussed later).
Example. Your employer sends you on a
5-day business trip to Phoenix in March 2017
and gives you a $400 ($80 × 5 days) advance
to cover your meals and incidental expenses.
The federal per diem for meals and incidental
expenses for Phoenix is $59. Your trip lasts only
3 days. Under your employer's accountable
plan, you must return the $160 ($80 × 2 days)
advance for the 2 days you didn’t travel. For the
3 days you did travel, you don’t have to return
the $63 difference between the allowance you
received and the federal rate for Phoenix (($80
− $59) × 3 days). However, the $63 will be re-
ported on your Form W-2 as wages.
Nonaccountable Plans
A nonaccountable plan is a reimbursement or
expense allowance arrangement that doesn’t
meet one or more of the three rules listed earlier
under Accountable Plans.
In addition, even if your employer has an ac-
countable plan, the following payments will be
treated as being paid under a nonaccountable
plan.
Excess reimbursements you fail to return
to your employer.
Reporting Travel, Entertainment, Gift,
and Car Expenses and Reimbursements
IF the type of reimbursement (or
other expense allowance)
arrangement is under:
THEN the employer reports on
Form W-2:
AND the employee
reports on
Form 2106: *
An accountable plan with:
Actual expense reimbursement: Adequate
accounting made and excess returned.
No amount. No amount.
Actual expense reimbursement: Adequate
accounting and return of excess both required
but excess not returned.
The excess amount as wages in
box 1.
No amount.
Per diem or mileage allowance up to the
federal rate: Adequate accounting made and
excess returned.
No amount. All expenses and reimbursements
only if excess expenses are
claimed. Otherwise, form is not
filed.
Per diem or mileage allowance up to the
federal rate: Adequate accounting and return
of excess both required but excess not
returned.
The excess amount as wages in
box 1. The amount up to the
federal rate is reported only under
code L in box 12 of Form W-2—it
isn’t reported in box 1.
No amount.
Per diem or mileage allowance exceeds the
federal rate: Adequate accounting up to the
federal rate only and excess not returned.
The excess amount as wages in
box 1. The amount up to the
federal rate is reported only under
code L in box 12 of Form W-2—it
isn’t reported in box 1.
All expenses (and reimbursements
reported under code L in box 12 of
Form W-2) only if expenses in
excess of the federal rate are
claimed. Otherwise, form isn’t filed.
A nonaccountable plan with:
Either adequate accounting or return of
excess, or both, not required by plan.
The entire amount as wages in
box 1.
All expenses.
No reimbursement plan: The entire amount as wages in
box 1.
All expenses.
* You may be able to use Form 2106-EZ. See Completing Forms 2106 and 2106-EZ, later.
Table 6-1.
Page 32 Chapter 6 How To Report
Reimbursement of nondeductible expen-
ses related to your employer's business.
See Reimbursement of nondeductible ex-
penses, earlier, under Accountable Plans.
An arrangement that repays you for business
expenses by reducing the amount reported as
your wages, salary, or other pay will be treated
as a nonaccountable plan. This is because you
are entitled to receive the full amount of your
pay whether or not you have any business ex-
penses.
If you aren’t sure if the reimbursement or ex-
pense allowance arrangement is an accounta-
ble or nonaccountable plan, ask your employer.
Reporting your expenses under a nonac-
countable plan. Your employer will combine
the amount of any reimbursement or other ex-
pense allowance paid to you under a nonac-
countable plan with your wages, salary, or other
pay. Your employer will report the total in box 1
of your Form W-2.
You must complete Form 2106 or 2106-EZ
and itemize your deductions to deduct your ex-
penses for travel, transportation, meals, or en-
tertainment. Your meal and entertainment ex-
penses will be subject to the 50% limit
discussed in chapter 2. Also, your total expen-
ses will be subject to the 2%-of-adjus-
ted-gross-income limit that applies to most mis-
cellaneous itemized deductions.
Example 1. Kim's employer gives her
$1,000 a month ($12,000 total for the year) for
her business expenses. Kim doesn’t have to
provide any proof of her expenses to her em-
ployer, and Kim can keep any funds that she
doesn’t spend.
Kim is being reimbursed under a nonac-
countable plan. Her employer will include the
$12,000 on Kim's Form W-2 as if it were wages.
If Kim wants to deduct her business expenses,
she must complete Form 2106 or 2106-EZ and
itemize her deductions.
Example 2. Kevin is paid $2,000 a month
by his employer. On days that he travels away
from home on business, his employer designa-
tes $50 a day of his salary as paid to reimburse
his travel expenses. Because his employer
would pay Kevin his monthly salary whether or
not he was traveling away from home, the ar-
rangement is a nonaccountable plan. No part of
the $50 a day designated by his employer is
treated as paid under an accountable plan.
Rules for Independent
Contractors and Clients
This section provides rules for independent
contractors who incur expenses on behalf of a
client or customer. The rules cover the reporting
and substantiation of certain expenses dis-
cussed in this publication, and they affect both
independent contractors and their clients or
customers.
You are considered an independent con-
tractor if you are self-employed and you per-
form services for a customer or client.
Accounting to Your Client
If you received a reimbursement or an allow-
ance for travel, entertainment, or gift expenses
that you incurred on behalf of a client, you
should provide an adequate accounting of
these expenses to your client. If you don’t ac-
count to your client for these expenses, you
must include any reimbursements or allowan-
ces in income. You must keep adequate re-
cords of these expenses whether or not you ac-
count to your client for these expenses.
If you don’t separately account for and seek
reimbursement for meals and entertainment in
connection with providing services for a client,
you are subject to the 50% limit on those ex-
penses. See 50% limit in chapter 2.
Adequate accounting. As a self-employed
person, you adequately account by reporting
your actual expenses. You should follow the re-
cordkeeping rules in chapter 5.
How to report. For information on how to
report expenses on your tax return, see
Self-employed at the beginning of this chapter.
Required Records for
Clients or Customers
If you are a client or customer, you generally
don’t have to keep records to prove the reim-
bursements or allowances you give, in the
course of your business, to an independent
contractor for travel or gift expenses incurred on
your behalf. However, you must keep records if:
You reimburse the contractor for entertain-
ment expenses incurred on your behalf,
and
The contractor adequately accounts to you
for these expenses.
Contractor adequately accounts. If the con-
tractor adequately accounts to you for entertain-
ment expenses, you (the client or customer)
must keep records documenting each element
of the expense, as explained in chapter 5. Use
your records as proof for a deduction on your
tax return. If entertainment expenses are ac-
counted for separately, you are subject to the
50% limit on entertainment. If the contractor ad-
equately accounts to you for reimbursed
amounts, you don’t have to report the amounts
on an information return.
Contractor doesn’t adequately account. If
the contractor doesn’t adequately account to
you for allowances or reimbursements of enter-
tainment expenses, you don’t have to keep re-
cords of these items. You aren’t subject to the
50% limit on entertainment in this case. You can
deduct the reimbursements or allowances as
payment for services if they are ordinary and
necessary business expenses. However, you
must file Form 1099-MISC to report amounts
paid to the independent contractor if the total of
the reimbursements and any other fees is $600
or more during the calendar year.
How To Use Per Diem
Rate Tables
This section contains information about the per
diem rate substantiation methods available and
the choice of rates you must make for the last 3
months of the year.
The Two Substantiation
Methods
High-low method. IRS notices list the locali-
ties that are treated under the high-low substan-
tiation method as high-cost localities for all or
part of the year. Notice 2016-58, available at
IRS.gov/irb/2016-41_IRB/ar06.html, lists the lo-
calities that are eligible for $282 ($68 meals and
incidental expenses (M&IE)) per diem, effective
October 1, 2017. For travel on or after October
1, 2017, all other localities within the continental
United States (CONUS) are eligible for $189
($57 M&IE) per diem under the high-low
method.
Notice 2017-54, available at IRS.gov/irb/
2017-42_IRB/ar06.html, lists the localities that
are eligible for $284 ($68 M&IE) per diem, ef-
fective October 1, 2017. For travel on or after
October 1, 2017, the per diem for all other local-
ities increased to $191 ($57 M&IE).
Regular federal per diem rate method. Reg-
ular federal per diem rates are published by the
General Services Administration (GSA). Both
tables include the separate rate for M&IE for
each locality. The rates listed for FY2017 at
GSA.gov/Perdiem are effective October 1,
2016, and those listed for FY2018 are effective
October 1, 2017. The standard rate for all loca-
tions within CONUS not specifically listed for
FY2017 is $142 ($91 for lodging and $51 for
M&IE). For FY2018, this rate increases to $144
($93 for lodging and $51 for M&IE).
Transition Rules
The transition period covers the last 3 months
of the calendar year, from the time that new
rates are effective (generally October 1)
through December 31. During this period, you
generally may change to the new rates or finish
out the year with the rates you had been using.
High-low method. If you use the high-low sub-
stantiation method, when new rates become ef-
fective (generally October 1) you can either
continue with the rates you used for the first part
of the year or change to the new rates. How-
ever, you must continue using the high-low
method for the rest of the calendar year
(through December 31). If you are an employer,
you must use the same rates for all employees
reimbursed under the high-low method during
that calendar year.
The new rates and localities for the high-low
method are included each year in a notice that
is generally published in mid to late September.
You can find the notice in the weekly Internal
Revenue Bulletin (IRB) at IRS.gov/IRB, or visit
IRS.gov and enter “Special Per Diem Rates” in
the search box.
Chapter 6 How To Report Page 33
Federal per diem rate method. New CONUS
per diem rates become effective on October 1
of each year and remain in effect through Sep-
tember 30 of the following year. Employees be-
ing reimbursed under the per diem rate method
during the first 9 months of a year (January 1–
September 30) must continue under the same
method through the end of that calendar year
(December 31). However, for travel by these
employees from October 1 through December
31, you can choose to continue using the same
per diem rates or use the new rates.
The new federal CONUS per diem rates are
published each year, generally early in Septem-
ber. Go to GSA.gov/Perdiem.
Per diem rates for localities listed for
FY2018 may change at any time. To be
sure you have the most current rate,
check GSA.gov/Perdiem.
Completing Forms
2106 and 2106-EZ
This section briefly describes how employees
complete Forms 2106 and 2106-EZ. Table 6-1
explains what the employer reports on Form
W-2 and what the employee reports on Form
2106. The instructions for the forms have more
information on completing them.
If you are self-employed, don’t file
Form 2106 or 2106-EZ. Report your
expenses on Schedule C (Form 1040),
Schedule C-EZ (Form 1040), or Schedule F
(Form 1040). See the instructions for the form
that you must file.
Form 2106-EZ. You may be able to use the
shorter Form 2106-EZ to claim your employee
business expenses. You can use this form if
you meet all the following conditions.
You are an employee deducting ordinary
and necessary expenses attributable to
your job.
You weren’t reimbursed by your employer
for your expenses (amounts included in
box 1 of your Form W-2 aren’t considered
reimbursements).
If you are claiming car expenses, you are
using the standard mileage rate.
Car expenses. If you used a car to perform
your job as an employee, you may be able to
deduct certain car expenses. These are gener-
ally figured on Form 2106, Part II, and then
claimed on Form 2106, Part I, line 1, Column A.
Car expenses using the standard mileage rate
can also be figured on Form 2106-EZ by com-
pleting Part II, and Part I, line 1.
Information on use of cars. If you claim
any deduction for the business use of a car, you
must answer certain questions and provide in-
formation about the use of the car. The informa-
tion relates to the following items.
Date placed in service.
Mileage (total, business, commuting, and
other personal mileage).
Percentage of business use.
After-work use.
Use of other vehicles.CAUTION
!CAUTION
!
Whether you have evidence to support the
deduction.
Whether or not the evidence is written.
Employees must complete Form 2106, Part II,
Section A, or Form 2106-EZ, Part II, to provide
this information.
Standard mileage rate. If you claim a de-
duction based on the standard mileage rate in-
stead of your actual expenses, you must com-
plete Form 2106, Part II, Section B. The amount
on line 22 (Section B) is carried to Form 2106,
Part I, line 1. In addition, on Part I, line 2, you
can deduct parking fees and tolls that apply to
the business use of the car. If you file Form
2106-EZ, complete Part I, line 1, for the stand-
ard mileage rate and line 2 for parking fees and
tolls. See Standard Mileage Rate in chapter 4
for information on using this rate.
Actual expenses. If you claim a deduction
based on actual car expenses, you can’t use
Form 2106-EZ. You must complete Form 2106,
Part II, Section C. In addition, unless you lease
your car, you must complete Section D to show
your depreciation deduction and any section
179 deduction you claim.
If you are still using a car that is fully depre-
ciated, continue to complete Section C. Since
you have no depreciation deduction, enter zero
on line 28. In this case, don’t complete Sec-
tion D.
Car rentals. If you claim car rental expen-
ses on Form 2106, line 24a, you may have to
reduce that expense by an inclusion amount as
described in chapter 4. If so, you can show your
car expenses and any inclusion amount as fol-
lows.
1. Figure the inclusion amount without taking
into account your business use percent-
age for the tax year.
2. Report the inclusion amount from (1) on
Form 2106, Part II, line 24b.
3. Report on line 24c the net amount of car
rental expenses (total car rental expenses
minus the inclusion amount figured in (1)).
The net amount of car rental expenses will be
adjusted on Form 2106, Part II, line 27, to reflect
the percentage of business use for the tax year.
Transportation expenses. Show your trans-
portation expenses that didn’t involve overnight
travel on Form 2106, line 2, Column A, or on
Form 2106-EZ, Part I, line 2. Also include on
this line business expenses you have for park-
ing fees and tolls. Don’t include expenses of op-
erating your car or expenses of commuting be-
tween your home and work.
Employee business expenses other than
meals and entertainment. Show your other
employee business expenses on Form 2106,
lines 3 and 4, Column A, or Form 2106-EZ,
lines 3 and 4. Don’t include expenses for meals
and entertainment on those lines. Line 4 is for
expenses such as gifts, educational expenses
(tuition and books), office-in-the-home expen-
ses, and trade and professional publications.
If line 4 expenses are the only ones
you are claiming, you received no reim-
bursements (or the reimbursementsTIP
were all included in box 1 of your Form W-2),
and the Special Rules discussed later don’t ap-
ply to you, don’t complete Form 2106 or
2106-EZ. Claim these amounts directly on
Schedule A (Form 1040), line 21. List the type
and amount of each expense on the dotted
lines and include the total on line 21.
Meal and entertainment expenses. Show
the full amount of your expenses for busi-
ness-related meals and entertainment on Form
2106, line 5, Column B. Include meals while
away from your tax home overnight and other
business meals and entertainment. Enter 50%
of the line 8, Column B, meal and entertainment
expenses on line 9, Column B.
If you file Form 2106-EZ, enter the full
amount of your meals and entertainment on the
line to the left of line 5 and multiply the total by
50% (0.50). Enter the result on line 5.
“Hours of service” limits. If you are sub-
ject to the Department of Transportation's
“hours of service” limits (as explained earlier un-
der Individuals subject to “hours of service” lim-
its in chapter 2), use 80% instead of 50% for
meals while away from your tax home.
Reimbursements. Enter on Form 2106, line 7
(you can’t use Form 2106-EZ) the amounts your
employer (or third party) reimbursed you that
weren’t reported to you in box 1 of your Form
W-2. This includes any amount reported under
code L in box 12 of Form W-2.
Allocating your reimbursement. If you
were reimbursed under an accountable plan
and want to deduct excess expenses that
weren’t reimbursed, you may have to allocate
your reimbursement. This is necessary when
your employer pays your reimbursement in the
following manner.
Pays you a single amount that covers
meals and/or entertainment, as well as
other business expenses.
Doesn’t clearly identify how much is for de-
ductible meals and/or entertainment.
You must allocate that single payment so that
you know how much to enter on Form 2106,
line 7, Column A and Column B.
Example. Rob's employer paid him an ex-
pense allowance of $12,000 this year under an
accountable plan. The $12,000 payment con-
sisted of $5,000 for airfare and $7,000 for
meals, entertainment, and car expenses. The
employer didn’t clearly show how much of the
$7,000 was for the cost of deductible meals and
entertainment. Rob actually spent $14,000 dur-
ing the year ($5,500 for airfare, $4,500 for
meals and entertainment, and $4,000 for car
expenses).
Since the airfare allowance was clearly iden-
tified, Rob knows that $5,000 of the payment
goes in Column A, line 7, of Form 2106. To allo-
cate the remaining $7,000, Rob uses the work-
sheet from the Instructions for Form 2106. His
completed worksheet follows.
Page 34 Chapter 6 How To Report
Reimbursement Allocation Work-
sheet
(Keep for your records)
1. Enter the total amount of
reimbursements your
employer gave you that
weren’t reported to you in
box 1 of Form W-2 . . . . . . . . . $7,000
2. Enter the total amount of your
expenses for the periods
covered by this
reimbursement . . . . . . . . . . . . 8,500
3. Of the amount on line 2, enter
your total expense for meals
and entertainment . . . . . . . . . 4,500
4. Divide line 3 by line 2. Enter
the result as a decimal
(rounded to at least three
places) . . . . . . . . . . . . . . . . . . 0.529
5. Multiply line 1 by line 4. Enter
the result here and in Column
B, line 7 . . . . . . . . . . . . . . . . . 3,703
6. Subtract line 5 from line 1.
Enter the result here and in
Column A, line 7 . . . . . . . . . . . $3,297
On line 7 of Form 2106, Rob enters $8,297
($5,000 airfare and $3,297 of the $7,000) in
Column A and $3,703 (of the $7,000) in Col-
umn B.
After you complete the form. After you have
completed your Form 2106 or 2106-EZ, follow
the directions on that form to deduct your ex-
penses on the appropriate line of your tax re-
turn. For most taxpayers, this is line 21 of
Schedule A (Form 1040). However, if you are a
government official paid on a fee basis, a per-
forming artist, an Armed Forces reservist, or a
disabled employee with impairment-related
work expenses, see Special Rules, later.
Limits on employee business expenses.
Your employee business expenses may be
subject to either of the limits described next.
They are figured in the following order on the
specified form.
1. Limit on meals and entertainment.
Certain meal and entertainment expenses are
subject to a 50% limit. If you are an employee,
you figure this limit on line 9 of Form 2106 or
line 5 of Form 2106-EZ. (See 50% Limit in
chapter 2.)
2. Limit on miscellaneous itemized de-
ductions. If you are an employee, deduct your
employee business expenses (as figured on
Form 2106 or 2106-EZ) on line 21 of Sched-
ule A (Form 1040). Most miscellaneous item-
ized deductions, including employee business
expenses, are subject to a 2%-of-adjus-
ted-gross-income limit. This limit is figured on
line 26 of Schedule A (Form 1040).
3. Limit on total itemized deductions.
Total itemized deductions may be limited if your
adjusted gross income is over: $313,800 if filing
as marred filing jointly or qualifying widow(er);
$287,650 if head of household; $261,500 if sin-
gle; or $156,900 if married filing separately.
This limit is figured on the Itemized Deductions
Worksheet found in the Instructions for Sched-
ule A (Form 1040).
Special Rules
This section discusses special rules that apply
only to Armed Forces reservists, government
officials who are paid on a fee basis, performing
artists, and disabled employees with impair-
ment-related work expenses.
Armed Forces Reservists
Traveling More Than 100 Miles
From Home
If you are a member of a reserve component of
the Armed Forces of the United States and you
travel more than 100 miles away from home in
connection with your performance of services
as a member of the reserves, you can deduct
your travel expenses as an adjustment to gross
income rather than as a miscellaneous itemized
deduction. The amount of expenses you can
deduct as an adjustment to gross income is
limited to the regular federal per diem rate (for
lodging, meals, and incidental expenses) and
the standard mileage rate (for car expenses)
plus any parking fees, ferry fees, and tolls. See
Per Diem and Car Allowances, earlier, for more
information. Any expenses in excess of these
amounts can be claimed only as a miscellane-
ous itemized deduction subject to the 2% limit.
Member of a reserve component. You are a
member of a reserve component of the Armed
Forces of the United States if you are in the
Army, Navy, Marine Corps, Air Force, or Coast
Guard Reserve; the Army National Guard of the
United States; the Air National Guard of the Uni-
ted States; or the Reserve Corps of the Public
Health Service.
How to report. If you have reserve-related
travel that takes you more than 100 miles from
home, you should first complete Form 2106 or
Form 2106-EZ. Then include your expenses for
reserve travel over 100 miles from home, up to
the federal rate, from Form 2106, line 10, or
Form 2106-EZ, line 6, in the total on Form 1040,
line 24. Subtract this amount from the total on
Form 2106, line 10, or Form 2106-EZ, line 6,
and deduct the balance as an itemized deduc-
tion on Schedule A (Form 1040), line 21.
You can’t deduct expenses of travel that
doesn’t take you more than 100 miles from
home as an adjustment to gross income. In-
stead, you must complete Form 2106 or
2106-EZ and deduct those expenses as an
itemized deduction on Schedule A (Form 1040),
line 21.
Officials Paid on a Fee Basis
Certain fee-basis officials can claim their em-
ployee business expenses whether or not they
itemize their other deductions on Schedule A
(Form 1040).
Fee-basis officials are persons who are em-
ployed by a state or local government and who
are paid in whole or in part on a fee basis. They
can deduct their business expenses in perform-
ing services in that job as an adjustment to
gross income rather than as a miscellaneous
itemized deduction.
If you are a fee-basis official, include your
employee business expenses from Form 2106,
line 10, or Form 2106-EZ, line 6, in the total on
Form 1040, line 24.
Expenses of Certain
Performing Artists
If you are a performing artist, you may qualify to
deduct your employee business expenses as
an adjustment to gross income rather than as a
miscellaneous itemized deduction. To qualify,
you must meet all of the following requirements.
1. During the tax year, you perform services
in the performing arts as an employee for
at least two employers.
2. You receive at least $200 each from any
two of these employers.
3. Your related performing-arts business ex-
penses are more than 10% of your gross
income from the performance of those
services.
4. Your adjusted gross income isn’t more
than $16,000 before deducting these busi-
ness expenses.
Special rules for married persons. If you are
married, you must file a joint return unless you
lived apart from your spouse at all times during
the tax year. If you file a joint return, you must
figure requirements (1), (2), and (3) separately
for both you and your spouse. However, re-
quirement (4) applies to your and your spouse's
combined adjusted gross income.
Where to report. If you meet all of the above
requirements, you should first complete Form
2106 or 2106-EZ. Then you include your per-
forming-arts-related expenses from Form 2106,
line 10, or Form 2106-EZ, line 6, in the total on
Form 1040, line 24.
If you don’t meet all of the above require-
ments, you don’t qualify to deduct your expen-
ses as an adjustment to gross income. Instead,
you must complete Form 2106 or 2106-EZ and
deduct your employee business expenses as
an itemized deduction on Schedule A (Form
1040), line 21.
Impairment-Related Work
Expenses of Disabled Employees
If you are an employee with a physical or men-
tal disability, your impairment-related work ex-
penses aren’t subject to the 2%-of-adjus-
ted-gross-income limit that applies to most
other employee business expenses. After you
complete Form 2106 or 2106-EZ, enter your im-
pairment-related work expenses from Form
2106, line 10, or Form 2106-EZ, line 6, on
Schedule A (Form 1040), line 28, and identify
the type and amount of this expense on the line
next to line 28. Enter your employee business
expenses that are unrelated to your disability
from Form 2106, line 10, or Form 2106-EZ,
line 6, on Schedule A (Form 1040), line 21.
Impairment-related work expenses are your
allowable expenses for attendant care at your
workplace and other expenses in connection
with your workplace that are necessary for you
to be able to work.
Chapter 6 How To Report Page 35
You are disabled if you have:
A physical or mental disability (for exam-
ple, blindness or deafness) that function-
ally limits your being employed; or
A physical or mental impairment (for exam-
ple, a sight or hearing impairment) that
substantially limits one or more of your ma-
jor life activities, such as performing man-
ual tasks, walking, speaking, breathing,
learning, or working.
You can deduct impairment-related expen-
ses as business expenses if they are:
Necessary for you to do your work satis-
factorily;
For goods and services not required or
used, other than incidentally, in your per-
sonal activities; and
Not specifically covered under other in-
come tax laws.
Example 1. You are blind. You must use a
reader to do your work. You use the reader both
during your regular working hours at your place
of work and outside your regular working hours
away from your place of work. The reader's
services are only for your work. You can deduct
your expenses for the reader as business ex-
penses.
Example 2. You are deaf. You must use a
sign language interpreter during meetings while
you are at work. The interpreter's services are
used only for your work. You can deduct your
expenses for the interpreter as business expen-
ses.
How To Get Tax Help
If you have questions about a tax issue, need
help preparing your tax return, or want to down-
load free publications, forms, or instructions, go
to IRS.gov and find resources that can help you
right away.
Preparing and filing your tax return. Find
free options to prepare and file your return on
IRS.gov or in your local community if you qual-
ify.
The Volunteer Income Tax Assistance
(VITA) program offers free tax help to people
who generally make $54,000 or less, persons
with disabilities, and limited-English-speaking
taxpayers who need help preparing their own
tax returns. The Tax Counseling for the Elderly
(TCE) program offers free tax help for all tax-
payers, particularly those who are 60 years of
age and older. TCE volunteers specialize in an-
swering questions about pensions and retire-
ment-related issues unique to seniors.
You can go to IRS.gov to see your options
for preparing and filing your return which in-
clude the following.
Free File. Go to IRS.gov/FreeFile. See if
you qualify to use brand-name software to
prepare and e-file your federal tax return
for free.
VITA. Go to IRS.gov/VITA, download the
free IRS2Go app, or call 1-800-906-9887
to find the nearest VITA location for free
tax preparation.
TCE. Go to IRS.gov/TCE, download the
free IRS2Go app, or call 1-888-227-7669
to find the nearest TCE location for free tax
preparation.
Getting answers to your tax ques-
tions. On IRS.gov get answers to your
tax questions anytime, anywhere.
Go to IRS.gov/Help or IRS.gov/LetUsHelp
pages for a variety of tools that will help
you get answers to some of the most com-
mon tax questions.
Go to IRS.gov/ITA for the Interactive Tax
Assistant, a tool that will ask you questions
on a number of tax law topics and provide
answers. You can print the entire interview
and the final response for your records.
Go to IRS.gov/Pub17 to get Pub. 17, Your
Federal Income Tax for Individuals, which
features details on tax-saving opportuni-
ties, 2017 tax changes, and thousands of
interactive links to help you find answers to
your questions. View it online in HTML, as
a PDF, or download it to your mobile de-
vice as an eBook.
You may also be able to access tax law in-
formation in your electronic filing software.
Getting tax forms and publications. Go to
IRS.gov/Forms to view, download, or print all of
the forms and publications you may need. You
can also download and view popular tax publi-
cations and instructions (including the 1040 in-
structions) on mobile devices as an eBook at no
charge. Or, you can go to IRS.gov/OrderForms
to place an order and have forms mailed to you
within 10 business days.
Access your online account (Individual tax-
payers only). Go to IRS.gov/Account to se-
curely access information about your federal tax
account.
View the amount you owe, pay online or
set up an online payment agreement.
Access your tax records online.
Review the past 18 months of your pay-
ment history.
Go to IRS.gov/SecureAccess to review the
required identity authentication process.
Using direct deposit. The fastest way to re-
ceive a tax refund is to combine direct deposit
and IRS e-file. Direct deposit securely and elec-
tronically transfers your refund directly into your
financial account. Eight in 10 taxpayers use di-
rect deposit to receive their refund. IRS issues
more than 90% of refunds in less than 21 days.
Delayed refund for returns claiming certain
credits. Due to changes in the law, the IRS
can’t issue refunds before mid-February 2018,
for returns that properly claimed the earned in-
come credit (EIC) or the additional child tax
credit (ACTC). This applies to the entire refund,
not just the portion associated with these cred-
its.
Getting a transcript or copy of a return. The
quickest way to get a copy of your tax transcript
is to go to IRS.gov/Transcripts. Click on either
"Get Transcript Online" or "Get Transcript by
Mail" to order a copy of your transcript. If you
prefer, you can:
Order your transcript by calling
1-800-908-9946.
Mail Form 4506-T or Form 4506T-EZ (both
available on IRS.gov).
Using online tools to help prepare your re-
turn. Go to IRS.gov/Tools for the following.
The Earned Income Tax Credit Assistant
(IRS.gov/EIC) determines if you’re eligible
for the EIC.
The Online EIN Application (IRS.gov/EIN)
helps you get an employer identification
number.
The IRS Withholding Calculator (IRS.gov/
W4App) estimates the amount you should
have withheld from your paycheck for fed-
eral income tax purposes.
The First Time Homebuyer Credit Account
Look-up (IRS.gov/HomeBuyer) tool pro-
vides information on your repayments and
account balance.
The Sales Tax Deduction Calculator
(IRS.gov/SalesTax) figures the amount you
can claim if you itemize deductions on
Schedule A (Form 1040), choose not to
claim state and local income taxes, and
you didn’t save your receipts showing the
sales tax you paid.
Resolving tax-related identity theft issues.
The IRS doesn’t initiate contact with tax-
payers by email or telephone to request
personal or financial information. This in-
cludes any type of electronic communica-
tion, such as text messages and social me-
dia channels.
Go to IRS.gov/IDProtection for information
and videos.
If your SSN has been lost or stolen or you
suspect you’re a victim of tax-related iden-
tity theft, visit IRS.gov/ID to learn what
steps you should take.
Checking on the status of your refund.
Go to IRS.gov/Refunds.
Due to changes in the law, the IRS can’t is-
sue refunds before mid-February 2018, for
returns that properly claimed the EIC or the
ACTC. This applies to the entire refund,
not just the portion associated with these
credits.
Download the official IRS2Go app to your
mobile device to check your refund status.
Call the automated refund hotline at
1-800-829-1954.
Making a tax payment. The IRS uses the lat-
est encryption technology to ensure your elec-
tronic payments are safe and secure. You can
make electronic payments online, by phone,
and from a mobile device using the IRS2Go
app. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
Go to IRS.gov/Payments to make a payment
using any of the following options.
IRS Direct Pay: Pay your individual tax bill
or estimated tax payment directly from
your checking or savings account at no
cost to you.
Debit or credit card: Choose an ap-
proved payment processor to pay online,
by phone, and by mobile device.
Electronic Funds Withdrawal: Offered
only when filing your federal taxes using
tax preparation software or through a tax
professional.
Page 36 Publication 463 (2017)
Electronic Federal Tax Payment Sys-
tem: Best option for businesses. Enroll-
ment is required.
Check or money order: Mail your pay-
ment to the address listed on the notice or
instructions.
Cash: You may be able to pay your taxes
with cash at a participating retail store.
What if I can’t pay now? Go to IRS.gov/
Payments for more information about your op-
tions.
Apply for an online payment agreement
(IRS.gov/OPA) to meet your tax obligation
in monthly installments if you can’t pay
your taxes in full today. Once you complete
the online process, you will receive imme-
diate notification of whether your agree-
ment has been approved.
Use the Offer in Compromise Pre-Qualifier
(IRS.gov/OIC) to see if you can settle your
tax debt for less than the full amount you
owe.
Checking the status of an amended return.
Go to IRS.gov/WMAR to track the status of
Form 1040X amended returns. Please note that
it can take up to 3 weeks from the date you
mailed your amended return for it to show up in
our system and processing it can take up to 16
weeks.
Understanding an IRS notice or letter. Go to
IRS.gov/Notices to find additional information
about responding to an IRS notice or letter.
Contacting your local IRS office. Keep in
mind, many questions can be answered on
IRS.gov without visiting an IRS Tax Assistance
Center (TAC). Go to IRS.gov/LetUsHelp for the
topics people ask about most. If you still need
help, IRS TACs provide tax help when a tax is-
sue can’t be handled online or by phone. All
TACs now provide service by appointment so
you’ll know in advance that you can get the
service you need without long wait times. Be-
fore you visit, go to IRS.gov/TACLocator to find
the nearest TAC, check hours, available serv-
ices, and appointment options. Or, on the
IRS2Go app, under the Stay Connected tab,
choose the Contact Us option and click on “Lo-
cal Offices”.
Watching IRS videos. The IRS Video portal
(IRSvideos.gov) contains video and audio pre-
sentations for individuals, small businesses,
and tax professionals.
Getting tax information in other languages.
For taxpayers whose native language isn’t Eng-
lish, we have the following resources available.
Taxpayers can find information on IRS.gov in
the following languages.
Spanish (IRS.gov/Spanish).
Chinese (IRS.gov/Chinese).
Vietnamese (IRS.gov/Vietnamese).
Korean (IRS.gov/Korean).
Russian (IRS.gov/Russian).
The IRS TACs provide over-the-phone inter-
preter service in over 170 languages, and the
service is available free to taxpayers.
The Taxpayer Advocate
Service Is Here To Help You
What is the Taxpayer Advocate
Service?
The Taxpayer Advocate Service (TAS) is an in-
dependent organization within the IRS that
helps taxpayers and protects taxpayer rights.
Their job is to ensure that every taxpayer is
treated fairly and that you know and understand
your rights under the Taxpayer Bill of Rights.
What Can the Taxpayer Advocate
Service Do For You?
They can help you resolve problems that you
can’t resolve with the IRS. And their service is
free. If you qualify for their assistance, you will
be assigned to one advocate who will work with
you throughout the process and will do every-
thing possible to resolve your issue. TAS can
help you if:
Your problem is causing financial difficulty
for you, your family, or your business,
You face (or your business is facing) an
immediate threat of adverse action, or
You’ve tried repeatedly to contact the IRS
but no one has responded, or the IRS
hasn’t responded by the date promised.
How Can You Reach Them?
They have offices in every state, the District of
Columbia, and Puerto Rico. Your local advo-
cate’s number is in your local directory and at
TaxpayerAdvocate.IRS.gov/Contact-Us. You
can also call them at 1-877-777-4778.
How Can You Learn About Your
Taxpayer Rights?
The Taxpayer Bill of Rights describes 10 basic
rights that all taxpayers have when dealing with
the IRS. Our Tax Toolkit at
TaxpayerAdvocate.IRS.gov can help you un-
derstand what these rights mean to you and
how they apply. These are your rights. Know
them. Use them.
How Else Does the Taxpayer
Advocate Service Help Taxpayers?
TAS works to resolve large-scale problems that
affect many taxpayers. If you know of one of
these broad issues, please report it to them at
IRS.gov/SAMS.
Low Income Taxpayer
Clinics
Low Income Taxpayer Clinics (LITCs) are inde-
pendent from the IRS. LITCs represent individu-
als whose income is below a certain level and
need to resolve tax problems with the IRS, such
as audits, appeals, and tax collection disputes.
In addition, clinics can provide information
about taxpayer rights and responsibilities in dif-
ferent languages for individuals who speak
English as a second language. Services are of-
fered for free or a small fee. To find a clinic near
you, visit TaxpayerAdvocate.IRS.gov/LITCmap
or see IRS Publication 4134, Low Income
Taxpayer Clinic List.
Publication 463 (2017) Page 37
Appendices
Appendices A-1 through A-5 show
the lease inclusion amounts that
you may need to report if you
leased a car (other than a truck or
van, or an electric car) for 30 days
or more. The tables are numbered.
Appendices B-1 through B-5
show the lease inclusion amounts
that you may need to report if you
leased a truck or van.
If any of these apply to you, use
the appendix for the year you first
leased the car. (See Leasing a Car
in chapter 4.)
Page 38 Publication 463 (2017)
Appendix A-1. Inclusion Amounts for Cars (Other Than Trucks and Vans) First Leased in 2013
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,000$ 19,500$ 2$ 4$ 6$ 7$ 8$
19,500 20,000 2 5 6 9 9
20,000 20,500 2 5 8 9 11
20,500 21,000 3 6 8 10 12
21,000 21,500 3 6 10 11 13
21,500 22,000 3 7 10 13 14
22,000 23,000 4 8 11 14 16
23,000 24,000 4 9 14 16 18
24,000 25,000 5 10 15 18 21
25,000 26,000 5 12 16 21 23
26,000 27,000 6 12 19 23 25
27,000 28,000 6 14 20 25 28
28,000 29,000 7 15 22 27 30
29,000 30,000 7 16 24 29 33
30,000 31,000 8 17 26 31 35
31,000 32,000 8 19 27 33 38
32,000 33,000 9 20 29 35 40
33,000 34,000 10 21 31 37 43
34,000 35,000 10 22 33 39 45
35,000 36,000 11 23 35 41 48
36,000 37,000 11 25 36 43 50
37,000 38,000 12 26 38 45 53
38,000 39,000 12 27 40 47 55
39,000 40,000 13 28 42 49 58
40,000 41,000 13 29 44 52 59
41,000 42,000 14 30 45 54 63
42,000 43,000 14 32 47 56 64
43,000 44,000 15 33 48 59 67
44,000 45,000 15 34 51 60 69
45,000 46,000 16 35 52 63 72
46,000 47,000 17 36 54 65 74
47,000 48,000 17 38 55 67 77
48,000 49,000 18 39 57 69 79
49,000 50,000 18 40 59 71 82
50,000 51,000 19 41 61 73 84
51,000 52,000 19 42 63 75 87
52,000 53,000 20 43 65 77 89
53,000 54,000 20 45 66 79 92
54,000 55,000 21 46 68 81 94
55,000 56,000 21 47 70 84 96
56,000 57,000 22 48 72 85 99
57,000 58,000 22 50 73 88 101
58,000 59,000 23 51 75 90 103
59,000 60,000 24 52 76 92 106
60,000 62,000 24 54 79 95 110
62,000 64,000 25 56 83 99 115
64,000 66,000 27 58 87 103 120
66,000 68,000 28 60 90 108 125
68,000 70,000 29 63 93 112 130
70,000 72,000 30 65 97 117 134
72,000 74,000 31 68 100 121 139
74,000 76,000 32 70 104 125 144
76,000 78,000 33 73 107 129 149
78,000 80,000 34 75 111 133 154
80,000 85,000 36 79 117 141 162
85,000 90,000 39 85 126 151 174
90,000 95,000 41 91 135 162 186
95,000 100,0002 44 97 144 172 199
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2013-21 (2013-12 I.R.B. 660), available at www.irs.gov/irb/2013-12_IRB/ar07.html.'
Publication 463 (2017) Page 39
Appendix A-2. Inclusion Amounts for Cars (Other Than Trucks and Vans) First Leased in 2014
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,000$ 19,500$ 3$ 6$ 10$ 11$ 13$
19,500 20,000 3 8 11 13 14
20,000 20,500 4 8 13 14 17
20,500 21,000 4 9 14 17 18
21,000 21,500 5 10 15 18 21
21,500 22,000 5 11 17 20 22
22,000 23,000 6 13 18 23 25
23,000 24,000 7 14 22 26 29
24,000 25,000 8 16 25 29 33
25,000 26,000 8 19 27 32 38
26,000 27,000 9 20 31 35 42
27,000 28,000 10 22 33 40 45
28,000 29,000 11 24 36 43 49
29,000 30,000 12 26 39 46 53
30,000 31,000 13 28 41 50 57
31,000 32,000 14 30 44 53 61
32,000 33,000 14 32 47 56 65
33,000 34,000 15 34 50 59 69
34,000 35,000 16 36 52 64 72
35,000 36,000 17 38 55 67 76
36,000 37,000 18 39 59 70 80
37,000 38,000 19 41 61 74 84
38,000 39,000 20 43 64 77 88
39,000 40,000 21 45 67 80 92
40,000 41,000 21 47 70 84 96
41,000 42,000 22 49 73 87 100
42,000 43,000 23 51 75 91 104
43,000 44,000 24 53 78 94 108
44,000 45,000 25 55 81 97 112
45,000 46,000 26 56 84 101 116
46,000 47,000 27 58 87 104 120
47,000 48,000 28 60 90 107 124
48,000 49,000 28 62 93 111 127
49,000 50,000 29 64 96 114 131
50,000 51,000 30 66 98 118 135
51,000 52,000 31 68 101 121 139
52,000 53,000 32 70 104 124 143
53,000 54,000 33 72 106 128 147
54,000 55,000 34 74 109 131 151
55,000 56,000 34 76 112 135 155
56,000 57,000 35 78 115 138 159
57,000 58,000 36 80 118 141 163
58,000 59,000 37 81 121 145 167
59,000 60,000 38 83 124 148 171
60,000 62,000 39 86 128 153 177
62,000 64,000 41 90 134 159 185
64,000 66,000 43 94 139 167 192
66,000 68,000 44 98 145 173 201
68,000 70,000 46 102 150 180 209
70,000 72,000 48 105 156 188 216
72,000 74,000 50 109 162 194 224
74,000 76,000 51 113 168 200 232
76,000 78,000 53 117 173 208 239
78,000 80,000 55 120 179 215 247
80,000 85,000 58 127 189 226 261
85,000 90,000 62 137 203 243 281
90,000 95,000 67 146 217 260 301
95,000 100,0002 71 156 231 277 320
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2014-21 (2014-11 I.R.B. 641), available at www.irs.gov/irb/2014-11_IRB/ar09.html.
Page 40 Publication 463 (2017)
Appendix A-3. Inclusion Amounts for Cars (Other Than Trucks and Vans) First Leased in 2015
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,000$ 19,500$ 5$ 11$ 15$ 19$ 21$
19,500 20,000 6 12 18 22 24
20,000 20,500 6 14 20 25 27
20,500 21,000 7 15 23 27 31
21,000 21,500 8 17 25 30 34
21,500 22,000 9 18 28 32 38
22,000 23,000 10 21 31 37 42
23,000 24,000 11 24 36 42 49
24,000 25,000 12 27 41 48 55
25,000 26,000 14 30 45 54 62
26,000 27,000 15 34 49 60 68
27,000 28,000 17 37 54 65 75
28,000 29,000 18 40 59 71 81
29,000 30,000 20 43 64 76 87
30,000 31,000 21 46 69 81 95
31,000 32,000 23 49 73 88 100
32,000 33,000 24 52 78 93 107
33,000 34,000 25 56 82 99 114
34,000 35,000 27 59 87 104 120
35,000 36,000 28 62 92 110 126
36,000 37,000 30 65 96 116 133
37,000 38,000 31 68 102 121 139
38,000 39,000 33 71 106 127 146
39,000 40,000 34 75 110 132 153
40,000 41,000 35 78 115 138 159
41,000 42,000 37 81 120 143 166
42,000 43,000 38 84 125 149 172
43,000 44,000 40 87 129 155 179
44,000 45,000 41 90 134 161 185
45,000 46,000 43 93 139 166 191
46,000 47,000 44 97 143 172 198
47,000 48,000 45 100 148 177 205
48,000 49,000 47 103 153 183 210
49,000 50,000 48 106 158 188 218
50,000 51,000 50 109 162 194 224
51,000 52,000 51 112 167 200 230
52,000 53,000 53 115 172 205 237
53,000 54,000 54 119 176 211 243
54,000 55,000 56 122 180 217 250
55,000 56,000 57 125 186 222 256
56,000 57,000 58 128 191 227 263
57,000 58,000 60 131 195 234 269
58,000 59,000 61 135 199 239 276
59,000 60,000 63 137 205 244 283
60,000 62,000 65 142 212 253 292
62,000 64,000 68 149 220 265 304
64,000 66,000 71 155 230 275 318
66,000 68,000 73 162 239 287 331
68,000 70,000 76 168 249 298 343
70,000 72,000 79 174 258 309 357
72,000 74,000 82 180 268 320 370
74,000 76,000 85 186 277 332 383
76,000 78,000 88 193 286 343 396
78,000 80,000 91 199 296 354 408
80,000 85,000 96 210 312 374 431
85,000 90,000 103 226 335 402 464
90,000 95,000 110 242 359 430 496
95,000 100,0002 117 258 382 458 529
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2015-19 (2015-8 I.R.B. 656), available at www.irs.gov/irb/2015-8_IRB/ar10.html.
Publication 463 (2017) Page 41
Appendix A-4. Inclusion Amounts for Cars (Other Than Trucks and Vans) First Leased in 2016
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,000$ 19,500$ 6$ 13$ 20$ 23$ 27$
19,500 20,000 7 15 23 27 30
20,000 20,500 8 17 26 30 35
20,500 21,000 8 19 29 33 39
21,000 21,500 10 21 31 38 42
21,500 22,000 11 23 34 41 47
22,000 23,000 12 26 39 46 53
23,000 24,000 14 30 44 54 60
24,000 25,000 16 34 50 60 69
25,000 26,000 17 38 56 67 78
26,000 27,000 19 42 62 74 85
27,000 28,000 21 46 68 81 93
28,000 29,000 23 50 73 89 101
29,000 30,000 25 53 80 95 110
30,000 31,000 26 58 85 102 118
31,000 32,000 28 62 91 109 126
32,000 33,000 30 65 98 116 134
33,000 34,000 32 69 103 123 142
34,000 35,000 34 73 109 130 150
35,000 36,000 35 77 115 137 158
36,000 37,000 37 81 121 144 166
37,000 38,000 39 85 127 151 174
38,000 39,000 41 89 132 158 183
39,000 40,000 42 93 138 166 190
40,000 41,000 44 97 144 172 199
41,000 42,000 46 101 150 179 207
42,000 43,000 48 105 155 187 215
43,000 44,000 50 109 161 193 223
44,000 45,000 51 113 167 201 231
45,000 46,000 53 117 173 207 239
46,000 47,000 55 121 179 214 247
47,000 48,000 57 124 185 222 255
48,000 49,000 59 128 191 228 264
49,000 50,000 60 133 196 236 271
50,000 51,000 62 136 203 242 280
51,000 52,000 64 140 209 249 288
52,000 53,000 66 144 214 257 295
53,000 54,000 68 148 220 263 304
54,000 55,000 69 152 226 271 312
55,000 56,000 71 156 232 277 320
56,000 57,000 73 160 238 284 328
57,000 58,000 75 164 243 292 336
58,000 59,000 77 168 249 298 345
59,000 60,000 78 172 255 306 352
60,000 62,000 81 178 264 316 364
62,000 64,000 85 185 276 330 381
64,000 66,000 88 194 287 344 397
66,000 68,000 92 201 299 358 413
68,000 70,000 95 209 311 372 430
70,000 72,000 99 217 322 387 445
72,000 74,000 102 225 334 400 462
74,000 76,000 106 233 346 414 478
76,000 78,000 110 241 357 428 494
78,000 80,000 113 249 369 442 510
80,000 85,000 120 262 390 467 538
85,000 90,000 128 282 419 502 579
90,000 95,000 137 302 448 537 620
95,000 100,0002 146 322 477 572 660
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2016-23 (2016-16 I.R.B. 581) available at www.irs.gov/irb/2016-16_IRB/ar06.html.
Page 42 Publication 463 (2017)
Appendix A-5.Inclusion Amounts for Cars ( Other Than Trucks and Vans) First Leased in 2017
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later
$19,000 $19,500 $6 $14 $20 $23 $27
19,500 20,000 7 16 23 27 31
20,000 20,500 8 18 26 30 35
20,500 21,000 9 20 28 35 39
21,000 21,500 10 21 32 38 44
21,500 22,000 11 23 35 42 47
22,000 23,000 12 27 39 47 53
23,000 24,000 14 31 45 54 62
24,000 25,000 16 34 52 61 70
25,000 26,000 18 38 58 68 78
26,000 27,000 19 43 63 75 87
27,000 28,000 21 47 69 82 95
28,000 29,000 23 51 75 89 103
29,000 30,000 25 55 80 97 112
30,000 31,000 27 58 87 104 120
31,000 32,000 29 62 93 111 128
32,000 33,000 30 67 99 118 136
33,000 34,000 32 71 104 126 144
34,000 35,000 34 75 110 133 152
35,000 36,000 36 79 116 140 160
36,000 37,000 38 82 123 147 169
37,000 38,000 40 86 129 154 177
38,000 39,000 41 91 134 161 186
39,000 40,000 43 95 140 168 194
40,000 41,000 45 99 146 175 202
41,000 42,000 47 103 152 182 210
42,000 43,000 49 106 159 189 218
43,000 44,000 50 111 164 197 226
44,000 45,000 52 115 170 204 234
45,000 46,000 54 119 176 211 243
46,000 47,000 56 123 182 218 251
47,000 48,000 58 127 187 225 260
48,000 49,000 60 130 194 232 268
49,000 50,000 61 135 200 239 276
50,000 51,000 63 139 206 246 284
51,000 52,000 65 143 211 254 292
52,000 53,000 67 147 217 261 301
53,000 54,000 69 151 223 268 309
54,000 55,000 70 155 229 275 318
55,000 56,000 72 159 235 282 326
56,000 57,000 74 163 241 289 334
57,000 58,000 76 167 247 296 342
58,000 59,000 78 171 253 303 350
59,000 60,000 80 174 260 310 359
60,000 62,000 82 181 268 321 371
62,000 64,000 86 189 280 335 387
64,000 66,000 90 197 292 349 404
66,000 68,000 93 205 304 364 420
68,000 70,000 97 213 315 379 436
70,000 72,000 101 221 327 393 453
72,000 74,000 104 229 339 407 470
74,000 76,000 108 237 351 421 486
76,000 78,000 111 245 363 436 502
78,000 80,000 115 253 375 450 518
80,000 85,000 122 267 396 474 548
85,000 90,000 131 287 425 511 588
90,000 95,000 140 307 455 546 630
95,000 100,0002 149 327 485 581 671
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2017-29 (2017-14 I.R.B. 1065) available at IRS.gov/irb/2017–14_IRB/ar10.html.
Publication 463 (2017) Page 43
Appendix B-1. Inclusion Amounts for Trucks and Vans First Leased in 2013
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,000$ 19,500$ 1$ 3$ 4$ 5$ 6$
19,500 20,000 2 3 5 6 7
20,000 20,500 2 4 6 7 8
20,500 21,000 2 5 7 8 9
21,000 21,500 2 5 8 9 11
21,500 22,000 3 6 8 10 12
22,000 23,000 3 7 10 11 14
23,000 24,000 4 8 11 14 16
24,000 25,000 4 9 14 16 18
25,000 26,000 5 10 15 18 21
26,000 27,000 5 12 17 20 23
27,000 28,000 6 13 18 23 25
28,000 29,000 6 14 20 25 28
29,000 30,000 7 15 22 27 30
30,000 31,000 7 16 24 29 33
31,000 32,000 8 17 26 31 35
32,000 33,000 8 19 27 33 38
33,000 34,000 9 20 29 35 41
34,000 35,000 10 21 31 37 43
35,000 36,000 10 22 33 39 46
36,000 37,000 11 23 35 41 48
37,000 38,000 11 25 36 43 51
38,000 39,000 12 26 38 45 53
39,000 40,000 12 27 40 48 55
40,000 41,000 13 28 42 49 58
41,000 42,000 13 29 44 52 60
42,000 43,000 14 30 46 54 62
43,000 44,000 14 32 47 56 65
44,000 45,000 15 33 48 59 67
45,000 46,000 15 34 51 60 70
46,000 47,000 16 35 52 63 72
47,000 48,000 17 36 54 65 74
48,000 49,000 17 38 55 67 77
49,000 50,000 18 39 57 69 79
50,000 51,000 18 40 59 71 82
51,000 52,000 19 41 61 73 84
52,000 53,000 19 42 63 75 87
53,000 54,000 20 43 65 77 89
54,000 55,000 20 45 66 80 91
55,000 56,000 21 46 68 81 94
56,000 57,000 21 47 70 84 96
57,000 58,000 22 48 72 86 98
58,000 59,000 22 50 73 88 101
59,000 60,000 23 51 75 90 103
60,000 62,000 24 52 78 93 108
62,000 64,000 25 55 81 97 113
64,000 66,000 26 57 85 101 118
66,000 68,000 27 60 88 106 122
68,000 70,000 28 62 92 110 127
70,000 72,000 29 64 96 114 132
72,000 74,000 30 67 99 118 137
74,000 76,000 31 69 103 122 142
76,000 78,000 32 72 105 127 147
78,000 80,000 34 73 110 131 151
80,000 85,000 35 78 116 138 160
85,000 90,000 38 84 124 149 172
90,000 95,000 41 90 133 160 184
95,000 100,0002 44 95 142 171 196
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2013-21 (2013-12 I.R.B. 660), available at www.irs.gov/irb/2013-12_IRB/ar07.html.
Page 44 Publication 463 (2017)
Appendix B-2. Inclusion Amounts for Trucks and Vans First Leased in 2014
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,500$ 20,000$ 2$ 5$ 7$ 8$ 10$
20,000 20,500 3 6 8 10 12
20,500 21,000 3 7 10 11 14
21,000 21,500 3 8 11 14 15
21,500 22,000 4 9 12 15 18
22,000 23,000 5 10 15 17 21
23,000 24,000 5 12 18 21 24
24,000 25,000 6 14 20 25 28
25,000 26,000 7 16 23 28 32
26,000 27,000 8 18 26 31 36
27,000 28,000 9 20 28 35 40
28,000 29,000 10 21 32 38 44
29,000 30,000 11 23 35 41 48
30,000 31,000 11 26 37 45 52
31,000 32,000 12 27 41 48 56
32,000 33,000 13 29 43 52 60
33,000 34,000 14 31 46 55 64
34,000 35,000 15 33 49 58 68
35,000 36,000 16 35 51 62 72
36,000 37,000 17 37 54 65 76
37,000 38,000 18 38 58 69 79
38,000 39,000 18 41 60 72 83
39,000 40,000 19 43 63 75 87
40,000 41,000 20 44 66 79 91
41,000 42,000 21 46 69 82 95
42,000 43,000 22 48 72 85 99
43,000 44,000 23 50 74 89 103
44,000 45,000 24 52 77 93 106
45,000 46,000 24 54 80 96 111
46,000 47,000 25 56 83 99 115
47,000 48,000 26 58 86 102 119
48,000 49,000 27 60 88 106 123
49,000 50,000 28 62 91 109 127
50,000 51,000 29 63 95 113 130
51,000 52,000 30 65 97 117 134
52,000 53,000 31 67 100 120 138
53,000 54,000 31 69 103 123 142
54,000 55,000 32 71 106 126 146
55,000 56,000 33 73 108 130 150
56,000 57,000 34 75 111 133 154
57,000 58,000 35 77 114 137 157
58,000 59,000 36 79 116 141 161
59,000 60,000 37 80 120 144 165
60,000 62,000 38 84 123 149 172
62,000 64,000 40 87 130 155 180
64,000 66,000 41 91 136 162 187
66,000 68,000 43 95 141 169 195
68,000 70,000 45 99 146 176 203
70,000 72,000 47 102 153 182 211
72,000 74,000 48 107 158 189 219
74,000 76,000 50 110 164 196 227
76,000 78,000 52 114 169 203 235
78,000 80,000 54 118 175 209 243
80,000 85,000 57 124 185 222 256
85,000 90,000 61 134 199 239 276
90,000 95,000 65 144 213 256 295
95,000 100,0002 70 153 227 273 315
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2014-21 (2014-11 I.R.B. 641), available at .www.irs.gov/irb/2014-11_IRB/ar09.html.
Publication 463 (2017) Page 45
Appendix B-3. Inclusion Amounts for Trucks and Vans First Leased in 2015
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,500$ 20,000$ 4$ 7$ 11$ 13$ 16$
20,000 20,500 4 9 13 16 19
20,500 21,000 5 11 15 19 22
21,000 21,500 6 12 18 22 25
21,500 22,000 6 14 20 25 28
22,000 23,000 7 16 24 29 33
23,000 24,000 9 19 29 34 40
24,000 25,000 10 23 33 40 46
25,000 26,000 12 25 38 46 53
26,000 27,000 13 29 42 51 60
27,000 28,000 15 32 47 57 65
28,000 29,000 16 35 52 62 73
29,000 30,000 18 38 56 68 79
30,000 31,000 19 41 61 74 85
31,000 32,000 20 45 66 79 91
32,000 33,000 22 48 70 85 98
33,000 34,000 23 51 75 91 104
34,000 35,000 25 54 80 96 111
35,000 36,000 26 57 85 101 118
36,000 37,000 28 60 89 108 124
37,000 38,000 29 63 94 113 131
38,000 39,000 30 67 98 119 137
39,000 40,000 32 70 103 124 144
40,000 41,000 33 73 108 130 150
41,000 42,000 35 76 113 135 157
42,000 43,000 36 79 118 141 163
43,000 44,000 38 82 122 147 169
44,000 45,000 39 85 127 153 176
45,000 46,000 40 89 131 158 183
46,000 47,000 42 92 136 163 189
47,000 48,000 43 95 141 169 195
48,000 49,000 45 98 145 175 202
49,000 50,000 46 101 151 180 208
50,000 51,000 48 104 155 186 215
51,000 52,000 49 108 159 192 221
52,000 53,000 51 110 165 197 228
53,000 54,000 52 114 169 203 234
54,000 55,000 53 117 174 208 241
55,000 56,000 55 120 178 214 248
56,000 57,000 56 123 183 220 254
57,000 58,000 58 126 188 225 261
58,000 59,000 59 130 192 231 267
59,000 60,000 61 133 197 236 273
60,000 62,000 63 137 204 245 283
62,000 64,000 66 144 213 256 296
64,000 66,000 68 150 223 268 308
66,000 68,000 71 157 232 278 322
68,000 70,000 74 163 241 290 335
70,000 72,000 77 169 251 301 348
72,000 74,000 80 175 261 312 361
74,000 76,000 83 182 269 324 374
76,000 78,000 86 188 279 335 386
78,000 80,000 89 194 288 346 400
80,000 85,000 94 205 305 366 422
85,000 90,000 101 221 328 394 455
90,000 95,000 108 237 351 422 488
95,000 100,0002 115 253 375 450 519
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2015-19 (2015-8 I.R.B. 656), available at www.irs.gov/irb/2015-8_IRB/ar10.html.
Page 46 Publication 463 (2017)
Appendix B-4. Inclusion Amounts for Trucks and Vans First Leased in 2016
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later . . . . . . .
19,500$ 20,000$ 3$ 8$ 12$ 14$ 16$
20,000 20,500 4 10 15 17 20
20,500 21,000 5 12 17 21 25
21,000 21,500 6 14 20 25 28
21,500 22,000 7 16 23 28 32
22,000 23,000 8 19 28 33 38
23,000 24,000 10 23 33 41 46
24,000 25,000 12 26 40 47 55
25,000 26,000 14 30 46 54 63
26,000 27,000 16 34 51 62 70
27,000 28,000 17 38 58 68 79
28,000 29,000 19 42 63 76 86
29,000 30,000 21 46 69 82 95
30,000 31,000 23 50 75 89 103
31,000 32,000 25 54 80 97 111
32,000 33,000 26 58 86 104 119
33,000 34,000 28 62 92 111 127
34,000 35,000 30 66 98 117 136
35,000 36,000 32 70 104 124 143
36,000 37,000 34 73 110 132 151
37,000 38,000 35 78 115 139 160
38,000 39,000 37 82 121 146 167
39,000 40,000 39 85 128 152 176
40,000 41,000 41 89 133 160 184
41,000 42,000 42 94 139 166 192
42,000 43,000 44 97 145 174 200
43,000 44,000 46 101 151 181 208
44,000 45,000 48 105 157 187 217
45,000 46,000 50 109 162 195 224
46,000 47,000 51 113 169 201 233
47,000 48,000 53 117 174 209 240
48,000 49,000 55 121 180 216 248
49,000 50,000 57 125 186 222 257
50,000 51,000 59 129 191 230 265
51,000 52,000 60 133 197 237 273
52,000 53,000 62 137 203 244 281
53,000 54,000 64 141 209 250 290
54,000 55,000 66 144 216 257 298
55,000 56,000 68 148 221 265 305
56,000 57,000 69 153 226 272 314
57,000 58,000 71 156 233 279 321
58,000 59,000 73 160 239 285 330
59,000 60,000 75 164 244 293 338
60,000 62,000 77 170 253 304 350
62,000 64,000 81 178 265 317 366
64,000 66,000 85 186 276 331 383
66,000 68,000 88 194 288 345 399
68,000 70,000 92 202 299 360 414
70,000 72,000 95 210 311 374 431
72,000 74,000 99 217 324 387 447
74,000 76,000 102 226 335 401 463
76,000 78,000 106 233 347 415 480
78,000 80,000 110 241 358 430 495
80,000 85,000 116 255 379 454 524
85,000 90,000 125 274 409 489 564
90,000 95,000 134 284 437 525 605
95,000 100,0002 156 314 466 560 645
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2016-23 (2016-16 I.R.B. 581), available at www.irs.gov/irb/2016-16_IRB/ar06.html.
Publication 463 (2017) Page 47
Appendix B-5. Inclusion Amounts for Trucks and Vans First Leased in 2017
Fair Market Value Tax Year of Lease1
Over Not Over 1st 2nd 3rd 4th 5th and Later
$19,500 $20,000 $4 $8 $11 $13 $16
20,000 20,500 4 10 14 17 20
20,500 21,000 5 12 17 21 23
21,000 21,500 6 14 20 24 28
21,500 22,000 7 16 23 28 32
22,000 23,000 9 19 27 33 38
23,000 24,000 10 23 34 40 46
24,000 25,000 12 27 39 48 54
25,000 26,000 14 31 45 55 62
26,000 27,000 16 35 51 62 71
27,000 28,000 18 39 57 69 79
28,000 29,000 19 43 63 76 88
29,000 30,000 21 47 69 83 96
30,000 31,000 23 51 75 90 104
31,000 32,000 25 55 81 97 112
32,000 33,000 27 59 87 104 120
33,000 34,000 29 63 93 111 129
34,000 35,000 30 67 99 119 136
35,000 36,000 32 71 105 126 145
36,000 37,000 34 75 111 133 153
37,000 38,000 36 79 117 140 161
38,000 39,000 38 83 122 148 169
39,000 40,000 40 87 128 155 177
40,000 41,000 41 91 135 161 186
41,000 42,000 43 95 141 168 194
42,000 43,000 45 99 146 176 203
43,000 44,000 47 103 152 183 211
44,000 45,000 49 107 158 190 219
45,000 46,000 50 111 165 196 228
46,000 47,000 52 115 170 204 236
47,000 48,000 54 119 176 211 244
48,000 49,000 56 123 182 218 252
49,000 50,000 58 127 188 225 261
50,000 51,000 60 131 194 232 269
51,000 52,000 61 135 200 240 277
52,000 53,000 63 139 206 247 285
53,000 54,000 65 143 212 254 293
54,000 55,000 67 147 218 261 301
55,000 56,000 69 151 224 268 309
56,000 57,000 70 155 230 275 318
57,000 58,000 72 159 236 282 326
58,000 59,000 74 163 242 289 335
59,000 60,000 76 167 248 296 343
60,000 62,000 79 173 256 308 355
62,000 64,000 82 181 269 321 372
64,000 66,000 86 189 280 336 388
66,000 68,000 90 197 292 350 404
68,000 70,000 93 205 304 365 420
70,000 72,000 97 213 316 379 437
72,000 74,000 101 221 328 393 453
74,000 76,000 104 229 340 407 470
76,000 78,000 108 237 352 421 487
78,000 80,000 111 245 364 436 503
80,000 85,000 118 259 384 461 532
85,000 90,000 127 279 414 497 573
90,000 95,000 136 299 444 532 614
95,000 100,0002 145 319 474 567 656
1 For the last tax year of the lease, use the dollar amount for the preceding year.
2 If the fair market value of the vehicle is more than $100,000, see Rev. Proc. 2017-29 (2017-14 I.R.B. 1065), available at IRS.gov/irb/2017-14_IRB/ar10.html.
Page 48 Publication 463 (2017)
To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.Index
"Hours of service" limits 12
Form 2106 34
50% limit on meals 5
A
Accountable plans 30–32
Accounting to employer 30
Adequate accounting 30
Independent contractors 33
Adequate records 25
Advertising:
Car display 15
Expenses 12
Signs, display racks, or other
promotional material to be
used on recipient's business
premises 14
Airline clubs 13
Allocating costs 4, 12, 27
Allowance (See Reimbursements)
Armed forces:
Assigned overseas 3
Assistance (See Tax help)
Associated entertainment 10
Athletic clubs 13
B
Basis of car 18
(See also Depreciation of car)
Bona fide business purpose 5
Box seats at entertainment
events 12
Business travel 6
Outside U.S. 7
Business use of car 16
More-than-50%-use test. 19
Qualified business use 19
C
Canceled checks:
As evidence of business
expenses 25
Car, defined 17
Car, truck, or van rentals 23, 24
Car expenses 15–24
Actual expenses 16
Allowances for 30–32
Business and personal use 16
Combining expenses 27
Disposition of car 24
Fixed and variable rate (FAVR)
allowance 31
Form 2106 34
Leasing a car, truck, or
van 23, 24
Mileage rate (See Standard
mileage rate)
Taxes paid on car 17
Traffic tickets 17
Car pools 15
Car rentals 24
Form 2106 34
Casualty and theft losses:
Cars 17
Depreciation 24
Charitable organizations:
Benefit events for 12
Sports events to benefit 12
Club dues 13
Commuting expenses 15
Conventions 9, 10
Country clubs 13
Cruise ships 9
D
Daily business mileage and
expense log (Table 6-2) 27
Depreciation of car 17
(See also Section 179 deductions)
Depreciation of Car:
Adjustment for using standard
mileage rate 24
Basis:
Sales taxes 17
Unrecovered basis 21
Casualty or theft, effect 24
Deduction 17, 24
Excess depreciation 23
Modified Accelerated Cost
Recovery System
(MACRS) 20
Section 179 deduction 21
Trade-in, effect 19, 24
Trucks and vans 21
Directly-related
entertainment 10
Disabled employees:
Impairment-related work
expenses 35
Documentary evidence 25
E
Employer-provided vehicles 16
Reporting requirements 29
Entertainment
expenses 10–12, 14
50% limit 11
Determination of
applicability (Figure
A) 11
Associated test 10
Deductible 12, 13
Summary (Table 2-1) 12
Directly-related test 10
Entertainment, defined 12
Form 2106 34
Tickets (See Tickets)
Entertainment facilities:
Expenses for use of 13
Estimates of expenses 25
Exceptions to the 50% Limit 11
Excess
reimbursements (See Reimbu
rsements)
Extravagant expenses 5, 12
F
Fair market value of car 23
Farmers:
Form 1040, Schedule F 27
Federal crime investigations or
prosecutions:
Federal employees engaged
in 4
Federal rate for per diem 6, 30
Fee-basis officials 35
Fees you pay 15
Fixed and variable rate (FAVR)
allowance 31
Form 1040, Schedule C 27
Form 1040, Schedule F 27, 29
Form 2106 18, 29, 33, 34
Form 2106-EZ 34
Form 4562 29
Form 4797 23
Form W-2:
Employer-provided
vehicles 29
Reimbursement of personal
expenses 29
Statutory employees 29
G
Gifts 13, 14
$25 limit 14
Combining for recordkeeping
purposes 27
Reporting requirements 29
Golf clubs 13
H
Hauling tools 15
High-low method:
Introduction 33
Transition rules 33
High-low rate method 31
Home office 15
Hotel clubs 13
I
Identity theft 36
Impairment-related work
expenses 35
Incidental expenses:
Defined 5
Gifts 14
No meals, incidentals only 5
Income-producing property 29
Incomplete records 25
Indefinite job assignment 4
Independent contractors 33
Interest on car loans 16
Itinerants 3
L
Lavish or extravagant
expenses 5, 12
Leasing a car, truck, or van 23,
Luxury private boxes at
entertainment events 12
Luxury water travel 8
M
MACRS (Modified Accelerated
Cost Recovery System) 20
2016 chart (Table 4-1) 22
Main place of business or
work 3
Married taxpayers:
Performing artists 35
Meal expenses 5
50% limit 11
Determination of
applicability (Figure
A) 11
Exceptions 11
Actual cost method 5
Form 2106 34
Major cities with higher
allowances 6
Standard meal allowance 5, 6,
Meals,
entertainment-related 12
Mileage rate (See Standard
mileage rate)
Military (See Armed forces)
Missing children, photographs
of 2
Modified Accelerated Cost
Recovery System
(MACRS) 20
2016 chart (Table 4-1) 22
N
Nonaccountable plans 32
O
Office in the home 15
Officials paid on fee basis 35
Overseas travel:
Conventions 9
Meal allowance 6
Part of trip outside U.S. 6
P
Parking fees 15, 16
Per diem allowances 30–32
Defined 29
Federal rate for 30
Per diem rates:
High-cost localities 33
High-low method 33
Regular federal method 33
Standard rate for unlisted
localities 33
Transition rules 33, 34
Performing artists 35
Personal property taxes 16, 17
Personal trips 6
Outside U.S. 8
Placed in service, cars 18
Probationary work period 4
Proving business purpose 25
Publications (See Tax help)
Public transportation:
Outside of U.S. travel 7
Publication 463 (2017) Page 49
R
Recordkeeping
requirements 25–27
Adequate records 25
Daily business mileage and
expense log (Table 6-2) 27
Destroyed records 26
How to prove expenses
(Table 5-1) 26
Incomplete records 25
Reimbursed expenses 27
Sampling to prove
expenses 26
Separating and combining
expenses 26, 27
Three-year period of
retention 27
Weekly travel expense and
entertainment record
(Table 6-3) 28
Regular federal method:
Introduction 33
Transition rules 34
Reimbursements 29–33
Accountable plans 30
Excess 32
Form 2106 34
Nonaccountable plans 32
Nondeductible expenses 30
Personal expenses 29
Recordkeeping 27
Reporting (Table 6-1) 32
Unclaimed 29
Reporting requirements 27
Per diem or car allowance 31
Reimbursements 29–33
Reservists:
Transportation expenses 15
Traveling more than 100 miles
from home 35
Returning excess
reimbursements 32
Rural mail carriers 15
S
Section 179 deduction:
Amended return 18
Deduction 17
Limits 17
Self-employed persons 11
Reporting requirements 27
Skyboxes 12
Spouse, expenses for 4, 13
Standard meal allowance 5, 6,
Standard mileage rate 2, 15, 31
Depreciation adjustment for
using 24
Form 2106 34
Statutory employees 29
T
Tables and figures:
50% limit determination (Figure
A) 11
Daily business mileage and
expense log (Table 6-2) 27
Entertainment expenses,
determination of
deductibility (Table 2-1) 10
Maximum depreciation
deduction for cars table 21
Modified Accelerated Cost
Recovery System (MACRS)
2016 chart (Table 4-1) 22
Proving expenses
(Table 5-1) 26
Reporting reimbursements
(Table 6-1) 32
Transportation expenses,
determination of
deductibility (Figure B) 14
Travel expenses, determination
of deductibility
(Table 1-1) 5
Weekly travel expense and
entertainment record
(Table 6-3) 28
Tax help 36
Tax home, determination of 3
Temporary job assignments 4
Temporary work location 14
Tickets 12, 14
Season or series tickets 27
Traffic violations 17
Tools:
Hauling tools 15
Trade association meetings 12
Trade-in of car 19, 24
Traffic tickets 17
Transients 3
Transition rules 33
Example:
High-low method 33
High-low method 33
Regular federal method 34
Transportation expenses 14–25
Car expenses 15–24
Deductible (Figure B) 14
five or more cars 16
Form 2106 34
Transportation workers 6, 12
Travel advance 29, 32
(See also Reimbursements)
Travel expenses 3–9
Another individual
accompanying taxpayer 4
Away from home 3
Deductible 4, 9
Summary of (Table 1-1) 5
Defined 3
Going home on days off 4
In U.S. 6
Lodging 6
Luxury water travel 8
Outside U.S. 7
Travel to family home 3
Trucks and vans:
Depreciation 21
Transportation workers 12
Transportation workers'
expenses 6
Two places of work 15
U
Unclaimed reimbursements 29
Unions:
Trips from union hall to place of
work 15
Unrecovered basis of car 21
V
Volunteers 2
W
Weekly travel expense and
entertainment record
(Table 6-3) 28
Page 50 Publication 463 (2017)