Revenue Ruling 83-33: Transportation Expense Rules

The Core Principle for Deducting Daily Transportation

The Internal Revenue Service considers the cost of traveling between your home and a primary place of work a nondeductible personal commute. However, an exception allows for the deduction of daily transportation costs for local travel between your residence and a temporary work location. This applies to both self-employed individuals and employees, provided the travel is for business purposes.

This rule distinguishes a nondeductible commute from deductible business travel. For instance, a self-employed graphic designer who primarily works from a home office but travels to a client’s office for a three-month project can deduct the costs of those daily trips. The key is that the travel is to a location that is not their regular or main place of business.

Establishing Qualifying Work Locations

Defining a Regular Place of Business

For transportation expenses to be deductible, travel must often originate from a regular place of business, which can include a home office. A home office must qualify as the taxpayer’s principal place of business under Internal Revenue Code Section 280A. This involves passing two tests: the “exclusive use” test and the “regular use” test. The exclusive use test mandates that a specific area of the home is used only for the trade or business.

The regular use test requires that the space is used for business on an ongoing basis. The home office must also be the location where essential administrative or management activities are conducted, and there is no other fixed location where the taxpayer conducts these duties. Activities like billing clients, ordering supplies, and maintaining records are examples of functions that can establish a home office as a principal place of business.

Defining a Temporary Work Location

The deductibility of transportation expenses depends on the destination being a “temporary” work location. A work location is considered temporary if employment there is realistically expected to last for one year or less, often called the “one-year rule.” If an assignment is expected from the outset to last more than a year, it is considered an indefinite assignment, and travel costs are not deductible.

The expectation of the duration of the work is a key factor. If an assignment is initially expected to last for nine months, it is temporary. However, if at the six-month mark the expectation changes and the job will now last for a total of 14 months, the location ceases to be temporary from the point the expectation changed. From that day forward, travel to that location becomes a nondeductible commute.

Calculating and Reporting the Deduction

The IRS provides two methods to calculate qualifying transportation expenses: the standard mileage rate and the actual expense method. The standard mileage rate is a simplified option where you multiply business miles driven by a rate set annually by the IRS. This rate covers costs like fuel, general maintenance, and depreciation.

The actual expense method allows for the deduction of the business-use portion of all vehicle operating costs. To use this method, you must track all costs and allocate them based on the percentage of miles driven for business versus personal use. These costs include:

• Gasoline and oil
• Repairs and tires
• Insurance and registration fees
• Depreciation

Regardless of the method chosen, you can also deduct the business portion of parking fees and tolls.

Proper record-keeping is required to support these deductions. You must maintain a mileage log that details the date of each trip, your destination, the business purpose, and the total miles driven. For the actual expense method, you must also keep all receipts for vehicle-related costs.

Self-employed individuals report these expenses on Schedule C (Form 1040), Profit or Loss from Business. Employees who incur unreimbursed expenses may use Form 2106, though recent tax law changes have suspended this deduction for most employees.