Business, Medical and Charitable Mileage Rates in 2025
Published December 20, 2024
On December 19, 2024, the Internal Revenue Service (IRS) published the standard mileage rates for 2025. The business use rate increased $0.03 to $0.70 per mile. Medical and moving expense rates are unchanged at $0.21 per mile. Finally, the charitable mileage rate continues to be $0.14 per mile.
The business use mileage rate was affected by the Tax Cuts and Jobs Act (TCJA). Miscellaneous deductions were generally not permitted between tax years beginning after December 31, 2017 and before January 1, 2026. However, an exception is available for members of the Armed Forces of the United States who are permitted to deduct unreimbursed employee travel expenses. These expenses are deducted on Line 12 of Schedule 1 of IRS Form 1040 and are not an itemized deduction. These military members may use the business standard mileage rate of $0.70 per mile for 2025.
The mileage rate for medical care or for moving expenses remains $0.21 per mile. The deduction for moving expenses has also been repealed from 2018 through 1025 for most taxpayers. An exception applies for members of the Armed Forces on active duty who are required to make a permanent change of station.
The standard rate for automobile travel to benefit a charitable organization has been $0.14 per mile for many years. The organization must be a qualified exempt charity or a religious organization. Travel to benefit a foundation or trust that operates exclusively for charitable, educational, science or animal welfare purposes may also be qualified.
If you desire to deduct your charitable mileage, you are required to keep detailed records. Your log should include the date, purpose, starting and ending location and number of miles driven. For example, if you have a record of 1,000 charitable miles in 2025, multiply $0.14×1000 and deduct $140. This would be an itemized deduction on Line 12 of Schedule A (Gifts to charity other than by cash or check).
The deduction must be a direct result of your volunteer activities for a qualified nonprofit. You are not permitted to take a deduction for any personal use. You would also not qualify for the deduction if you do not have documentation supporting your charitable travel.
LLCs Liable for 40% Easement Deduction Penalties
In Jackson Crossroads LLC et al. v. Commissioner; No. 12235-20; No. 12249-20; T.C. Memo. 2024-111, the Tax Court determined that two LLCs with charitable deductions from conservation easements, qualified for approximately $2.7 million in deductions.
Carlton K. Walstad and Russell Bennett were the owners and representatives of tax matters partner Greencone Investments, LLC (Greencone LLC). Walstad and Bennett were also principals in Jackson Crossroads, LLC (Jackson LLC) and Long Branch Investments, LLC (Long Branch LLC).
The LLCs had acquired approximately 925 acres in Walton and Morgan County, Georgia for a purchase price of $5.2 million. Jackson Crossroads, LLC obtained a drilling analysis that indicated there was granite on the property. Based on the potential mineral extraction, appraiser Robert Fletcher determined there would be a charitable conservation easement deduction on the Jackson property of $23,039,178.
An analysis was also done to determine the value of Long Branch, LLC. Appraiser George P. Galphin, Jr. concluded the charitable conservation easement for Long Branch, LLC would be $13,830,000. The conservation easement was based on a discounted cash flow analysis (DCF) and the assumption that there would be industrial development.
IRS appraiser Andrew Sheppard used a comparable property analysis to determine that the Jackson property was worth $1.6 million. IRS appraiser Raymond H. Krasinski analyzed the LLC property and determined that the LLC’s claim that the property was worth $103,000 per acre had a 0% probability of being correct.
The Tax Court noted the taxpayer "generally bears the burden of proving the Partnerships’ entitlement to the claimed charitable contribution deductions for qualified conservation easement contributions.” Under Section 170(a)(1), the taxpayer must provide appropriate substantiation. This includes a qualified appraisal under Reg. 1.170A-13(c)(3)(ii) and a qualified appraiser under Reg. 1.170A-13(c)(3)(i)(B).
The IRS claimed that Mr. Fletcher was not a qualified appraiser and, thus, there was no qualified appraisal. While there was a pre-arranged relationship between Walstad and appraiser Fletcher, the Tax Court determined that Fletcher was qualified and there was not a predetermined result. In addition, while the appraisal was not in full compliance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lack of compliance affected "the credibility and weight of the appraisals rather than to whether the appraisals are qualified appraisals." Therefore, the LLC appraisers and appraisals were qualified.
The IRS claimed the charitable deduction should be limited to the adjusted basis of the respective partnerships because under Section 1221(a)(1) the properties were inventory. Section 1221(a) indicates that inventory is not a capital asset if it is stock in trade of the taxpayer that is primarily held for sale to customers in the ordinary course of business. The basic questions are "(1) whether the taxpayer was engaged in a trade or business; (2) whether the taxpayer held the property primarily for sale in that business; and (3) whether the sales thus contemplated were ‘ordinary’ in the course of that business."
The factors relate to the purpose of the acquisition, the extent of public efforts to sell property, the number and substantiality of the sales, the extent of subdividing, developing and advertising, the use of a business office for selling the property, the degree of supervision and the time and effort the taxpayer devoted to the sales activity. Based on these criteria, the Tax Court determined the property was a capital asset.
The primary issue was the valuation of the property. The taxpayer appraiser used a discounted cash flow (DCF) analysis. However, the analysis for the Long Branch property ignored the requirement to obtain a rail spur. Because this rail spur was economically unlikely and the Jackson property was not a viable mine from a financial perspective, the court determined that "petitioner has failed to carry its evidentiary burden."
Therefore, the properties must be valued as its current agricultural, residential or recreational use. Based on the comparable sales of IRS appraiser Sheppard, the court determined the fair market value was $7,000 per acre. The approximate value of the two LLCs was $3.85 million. As a result, the claimed $36 million in charitable deductions was reduced to approximately $2.7 million. Because the claimed deduction exceeded 200% of the correct amount, a 40% accuracy penalty applied.
Editor's Note: The IRS is no longer winning syndicated easement cases on technical appraiser or appraisal arguments. The conservation easement cases now focus on a battle of the appraisers to determine valuation. In Jackson, the permitted charitable deductions were less than 10% of the claimed value. In addition, there was a 40% penalty assessed. The case is a good analysis of valuation factors. It also has a cogent discussion of the reasons that lead to asset characterization as ordinary income rather than capital gain.
One-Year Delay in RMD Final Regulations
In Announcement 2025-2; 2025-2 IRB 1, the IRS permitted a one-year delay on SECURE 2.0 Act proposed regulations on required minimum distributions (RMDs).
Section 401(a)(9) states that individual retirement accounts, retirement annuities, deferred compensation plans and other qualified plans are generally required to make minimum distributions after the required beginning date. Following the passage of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the IRS published proposed regulations on February 24, 2022 (87 FR 10504).
Following the passage of SECURE 2.0 Act in 2022, on July 19, 2024, the IRS published final RMD regulations under Section 401(a)(9). The regulations were intended to apply (with an exception for partial annuitization option of an annuity) on or after January 1, 2025.
However, in both written comments and a public hearing on September 25, 2024, commentators stated it would be very difficult to implement many of the provisions of the final regulations in a timely manner. This is due to both the uncertainty regarding several issues and the time required to reprogram software to be in compliance with the new RMD rules.
Therefore, the IRS noted that "in response to concerns raised by commenters, the provisions of future final regulations" will be delayed until the 2026 distribution calendar year.
Applicable Federal Rate of 5.2% for January: Rev. Rul. 2025-1; 2025-3 IRB 1 (16 December 2024)
The IRS has announced the Applicable Federal Rate (AFR) for January of 2025. The AFR under Sec. 7520 for the month of January is 5.2%. The rates for December of 5.0% or November of 4.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”
