Two mileage rates, one tax year: why your 2026 log needs a line in the sand at July 1

The IRS did something it almost never does. On July 13th, it changed the standard mileage rate in the middle of the tax year, retroactive to July 1st.

If you deduct vehicle mileage for your business, this is genuinely good news — the rate went up, which means every business mile you drive for the rest of the year is worth more. But it comes with a catch that’s going to cost some people money next spring: 2026 now has two different business mileage rates, and your log has to be able to tell them apart.

A single annual mileage total is no longer a usable number.

The rates

The business, medical, and moving rates each went up 3.5 cents. The charitable rate didn’t move because it’s fixed by statute rather than set by the IRS — it’s been 14 cents since 1998, and only Congress can change it.

The increase came in Announcement 2026-11, which amended the original 2026 rates issued back in December. The IRS pointed to fuel prices as the reason. When the original 72.5-cent rate was set, the national average for regular gas was around $2.89 a gallon. By mid-July it was closer to $3.87 — up roughly a third in six months.

Mid-year changes like this are rare. The last one was in 2022, and before that, 2011.

The part that will actually cost people money

Here’s the trap. The new rate is not retroactive. Miles you drove in January through June are still worth 72.5 cents. Miles from July onward are worth 76 cents. You don’t get to apply the higher rate to the whole year, and you shouldn’t apply the lower rate to the whole year either.

That means your mileage records need to support two separate subtotals for 2026 — one for each half of the year — and the split has to be defensible.

Consider a contractor who drives 14,000 business miles this year, weighted toward the busier second half: 5,000 miles before July and 9,000 after.

• Done correctly: (5,000 × $0.725) + (9,000 × $0.76) = $10,465
• Applying 72.5¢ to everything: $10,150 — leaving $315 on the table
• Applying 76¢ to everything: $10,640 — overstating the deduction by $175

Neither error is catastrophic on its own. But the second one is an accuracy problem on a return, and both are entirely avoidable. Multiply the same mistake across a heavier driver — 30,000 or 40,000 miles — and it stops being small.

The one thing to fix this week

Check what your mileage app actually gives you.

Most tracking apps and spreadsheets are built around a single annual figure, because until this month, a single annual figure was all anyone needed. If yours exports one number for the year with no way to filter by date, you have a problem — and it’s much easier to solve in July than in March.

Pull a report right now covering January 1 through June 30 and save it. Then start a clean second-half period. If you’re keeping a paper log or a spreadsheet, add a visible break at July 1 so the subtotals are obvious to you, to us, and to anyone who ever asks.

If your records are already thin for the first half of the year, deal with that now while you can still reconstruct from calendars, appointment history, invoices, and job records. Reconstructing eight months later from memory is exactly the situation the substantiation rules are designed to disallow.

What a mileage log actually has to contain

Vehicle expenses fall under the strict substantiation rules, which means a plausible estimate isn’t enough. For each business trip, your records should show:

• The date
• Your destination
• The business purpose of the trip
• The miles driven

You also need your total mileage for the year and the business-use percentage that follows from it. Records should be kept contemporaneously — at or near the time of the trip — not assembled at year end.

This is one of the most commonly disallowed deductions in an examination, and it’s almost always for the same reason: the taxpayer had the miles but couldn’t prove them.

If you reimburse employees

Update your reimbursement rate as of July 1, and don’t go back and true up the first half of the year at the new rate. Reimbursements above the applicable standard rate aren’t automatically tax-free — the excess is treated as wages unless the employee substantiates actual costs. A well-intentioned retroactive catch-up payment can create a payroll problem.

Also worth remembering: employees generally can’t deduct unreimbursed business mileage on their own returns. If your team drives for work, an accountable plan reimbursement is the mechanism that gets them made whole, and it’s deductible to the business.

One decision that isn’t reversible

A higher mileage rate makes the standard mileage method more attractive, and some business owners will look at the new number and want to switch. Two things to know before you do:

If you own the vehicle and claimed actual expenses with depreciation in the first year it was available for business use, you are locked out of the standard mileage method for that vehicle permanently. That door closed in year one.

If you lease the vehicle and chose standard mileage in the first year, you have to stay with standard mileage for the entire lease term.

The method choice on a business vehicle is one of the few decisions in tax that you make once and live with for the life of the vehicle. It’s worth getting right before you buy or lease, not after.

The short version

Two rates, one year, and a log that has to prove which miles fall on which side of July 1st. Pull your first-half report now, start a clean second half, and the rest takes care of itself.

If you’re not confident your mileage records would hold up, or you’re weighing standard mileage against actual expenses on a vehicle you’re about to put into service, let’s talk before the decision gets made for you.

Schedule a planning conversation