Rental Car Badassity

[ketchup]

Since May 2016 we've been a one-car household of two.

I drive to work five days a week, typical boring commute.  I drive our single car to work.  Using a rental there would be stupid.

My girlfriend is self-employed, and travels for work in bursts (usually once or twice a month for a few days at a time).  Previously, she would drive our second car on these trips if it was during the week when car 1 was with me at work.  Now she takes a rental.  Turns out it's usually cheaper.  She'll still usually take ours if it's on a weekend and she isn't going too far.

By us, Hertz (with unlimited mileage) plus AAA discount works out to as little as $15/day, plus taxes/etc.  She's only 24, but AAA discount waives the young-driver fee (which is outrageous: something like $27/day) and second driver fee (so I can drive it too in a pinch).  This turns out to be incredibly cost-effective if you're doing a lot of driving in a short amount of time.

Her last rental for a few days was a whopping $51 all in and she drove it almost a thousand miles (960).  Based on receipts and miles, the car got 41MPG (2016 Hyundai Accent).  That's 5.3cents/mile in rental charges, and about 5.7cents/mi in gas.  11 cents/mile total cost.

Previous rentals before that (both in November) was about $100 and driven about 1400 miles (14cents/mi all in with gas), and $48 / 720 miles (12 cents/mi all in with gas).

11-14 cents per mile is cheaper than driving our own car.  And she deducts the full IRS mileage of course, so her effective cost of driving the rentals is extremely low.

It feels wrong, but it pencils out.  We haven't been accumulating nearly as many miles as we thought we would on our single car, and we haven't wanted a second again.

We're probably not very profitable customers of Hertz.

[NoStacheOhio]

I'm not sure you can deduct rental mileage, you may need to write off the rental itself (plus gas).

[ketchup]

I'm not sure you can deduct rental mileage, you may need to write off the rental itself (plus gas).

Hmm, good to know.  I'll have to look into that.  She hasn't filed her taxes for last year yet (hadn't done this before 2016), so we'll have to get that all squared away.

[cheapass]

By us, Hertz (with unlimited mileage) plus AAA discount works out to as little as $15/day, plus taxes/etc. ...

... 11 cents/mile total cost.

This is awesome... I may have to look into this for my company trips. Travel using our personal vehicles is running at $0.50/mile currently.

[tedteddy]

Is there any sort of guidance from the IRS on this? I know that you can deduct the 50 cents/mile if you lease a car. Wouldn't a rental essentially be a short-term lease?

[Dicey]

I'm not sure you can deduct rental mileage, you may need to write off the rental itself (plus gas).

I'm not a tax professional, but IIRC, the IRS does not ask how many cars you own. Report the milage (but not the rental fees or gas) and be done with it. Be sure to keep a mileage log, because they'll want one if you're audited. Easy-peasy.

Be sure to get Hertz Gold status for free days, free upgrades, etc. Also, sometimes Costco can beat the AAA price, so be sure to check both.

[runewell]

Is there any sort of guidance from the IRS on this? I know that you can deduct the 50 cents/mile if you lease a car. Wouldn't a rental essentially be a short-term lease?

When you rent a car, you know that the amount you paid for the transportation is $X, the amount on the receipt.
When you own (or lease) a car, you don't have a receipt for the use, hence it makes sense to get reimbursed per mile.

I can't believe the IRS would allow you to deduct mileage on a rental when they give you a receipt.

[cheapass]

I can't believe the IRS would allow you to deduct mileage on a rental when they give you a receipt.

Would the IRS really know if you're using a rental or your own personal vehicle though?

[dogboyslim]

I'm not a lawyer nor an accountant, but I feel safe in giving this advice.  Consider long and hard the trade-off you are considering when lying to a governmental agency that has the power to destroy your life.

[Dicey]

I'm not a lawyer nor an accountant, but I feel safe in giving this advice.  Consider long and hard the trade-off you are considering when lying to a governmental agency that has the power to destroy your life.

Oh, c'mon, just check the tax code, it may be perfectly fine. No need for such "destroy your life" drama.
FWIW, yes, I have been audited, and yes, I had incorrectly reported some interest income. I was also able to dig up some receipts I'd missed when I filed my taxes, so the IRS ended up giving me an additional refund, despite my mistake.

[NoStacheOhio]

Official answer is deduct rental fee and gas, but no mileage.

https://ttlc.intuit.com/questions/2735917-can-you-deduct-rental-car-expenses-for-business-use-if-so-can-you-deduct-the-cost-of-the-rental-car-and-claim-the-standard-mileage-rate

https://www.irs.gov/pub/irs-pdf/p463.pdf

[dogboyslim]

I'm not a lawyer nor an accountant, but I feel safe in giving this advice.  Consider long and hard the trade-off you are considering when lying to a governmental agency that has the power to destroy your life.

Oh, c'mon, just check the tax code, it may be perfectly fine. No need for such "destroy your life" drama.
FWIW, yes, I have been audited, and yes, I had incorrectly reported some interest income. I was also able to dig up some receipts I'd missed when I filed my taxes, so the IRS ended up giving me an additional refund, despite my mistake.

Lucky you.  I know some folks with VERY different stories related to their audits. 

[Dicey]

I'm not a lawyer nor an accountant, but I feel safe in giving this advice.  Consider long and hard the trade-off you are considering when lying to a governmental agency that has the power to destroy your life.

Oh, c'mon, just check the tax code, it may be perfectly fine. No need for such "destroy your life" drama.
FWIW, yes, I have been audited, and yes, I had incorrectly reported some interest income. I was also able to dig up some receipts I'd missed when I filed my taxes, so the IRS ended up giving me an additional refund, despite my mistake.

Lucky you.  I know some folks with VERY different stories related to their audits.

Overall, my experience with the IRS was rather positive. My accountant wanted $500 minimum for his time. I decided to represent myself. Despite having to go twice, it was far easier than I'd imagined it would be. At the end, the auditor thanked me and said she often saw paid tax professionals who were less organized/prepared than I was. Though I'm sure none of them would have been as nervous about the process as I was, lol.

I'll also add that in that particular year, I had business expenses, including a home office, medical expenses, rental property expenses and more. IIRC, my combined state and federal tax bill was only about 4% of my gross income. Not quite Go Curry Cracker, but not bad.

I think that if the IRS perceives intent to deceive, it's a very different story. In my case, I had simply received a complicated statement and pulled the interest number from the wrong box. The auditor could see how I made the mistake. Back then, any audit resulting in $15 or less was considered a wash. I was determined to get a check from the IRS for my trouble, and I did. A whopping $18.99.

Luck had nothing to do with it.

[By the River]

Official answer is deduct rental fee and gas, but no mileage.

I would probably follow the IRS guidelines for what's been done but if it is that much of a difference in the future, then the OP could drive the rental car and the spouse take the owned car in order to maximize the deduction. (The downside of course is putting additional mileage on your car instead of rental).

[paddedhat]

I'm not a lawyer nor an accountant, but I feel safe in giving this advice.  Consider long and hard the trade-off you are considering when lying to a governmental agency that has the power to destroy your life.

Oh, c'mon, just check the tax code, it may be perfectly fine. No need for such "destroy your life" drama.
FWIW, yes, I have been audited, and yes, I had incorrectly reported some interest income. I was also able to dig up some receipts I'd missed when I filed my taxes, so the IRS ended up giving me an additional refund, despite my mistake.

Seriously. As a young contractor who was way too lax in my book keeping, I got on the IRS radar, and deserved to be in their cross hairs. They finally decided that they wanted about $800 and they wanted it now. I was told to report to a nearly secret office (seriously, in a downtown highrise, with a 1/2" tall brass plaque near the elevator, and no listed phone #s) and plead my case.  I arrived with a half assed shoebox full of documentation and met the agent. He told me to sit and I might be there for a while. After a long wait, he appeared with half a ream of paper with all of his data and reconciliations. He then told me that THEY owed me a few bucks, and that I could leave and the check would be in the mail. IMHE, in this case, and a few other issues, the scary IRS is often pretty rational to deal with.

[NoStacheOhio]

Seriously. As a young contractor who was way too lax in my book keeping, I got on the IRS radar, and deserved to be in their cross hairs. They finally decided that they wanted about $800 and they wanted it now. I was told to report to a nearly secret office (seriously, in a downtown highrise, with a 1/2" tall brass plaque near the elevator, and no listed phone #s) and plead my case.  I arrived with a half assed shoebox full of documentation and met the agent. He told me to sit and I might be there for a while. After a long wait, he appeared with half a ream of paper with all of his data and reconciliations. He then told me that THEY owed me a few bucks, and that I could leave and the check would be in the mail. IMHE, in this case, and a few other issues, the scary IRS is often pretty rational to deal with.

No personal experience, but my understanding is that they only turn it up to 11 if you try to ignore them or get out of paying something you rightfully owe. Just out of curiosity, with the $800 they initially said you owed, was there any payment plan offered?

[Syonyk]

I can't believe the IRS would allow you to deduct mileage on a rental when they give you a receipt.

Would the IRS really know if you're using a rental or your own personal vehicle though?

"Deliberately deceive the IRS" is not one of the better chunks of advice I've seen on this forum.

[ketchup]

I can't believe the IRS would allow you to deduct mileage on a rental when they give you a receipt.

Would the IRS really know if you're using a rental or your own personal vehicle though?

"Deliberately deceive the IRS" is not one of the better chunks of advice I've seen on this forum.

Yeah... as the OP, I recognize that my logic on that particular piece of this was flawed, and clearly will have to do it differently than I said.  I would not recommend "just doing it anyway."

[paddedhat]

Seriously. As a young contractor who was way too lax in my book keeping, I got on the IRS radar, and deserved to be in their cross hairs. They finally decided that they wanted about $800 and they wanted it now. I was told to report to a nearly secret office (seriously, in a downtown highrise, with a 1/2" tall brass plaque near the elevator, and no listed phone #s) and plead my case.  I arrived with a half assed shoebox full of documentation and met the agent. He told me to sit and I might be there for a while. After a long wait, he appeared with half a ream of paper with all of his data and reconciliations. He then told me that THEY owed me a few bucks, and that I could leave and the check would be in the mail. IMHE, in this case, and a few other issues, the scary IRS is often pretty rational to deal with.

No personal experience, but my understanding is that they only turn it up to 11 if you try to ignore them or get out of paying something you rightfully owe. Just out of curiosity, with the $800 they initially said you owed, was there any payment plan offered?

Honestly, at that point in my career, my book keeping skills were more F-ed up that a three legged goat, and I just showed up, surrendered, and asked forgiveness. I had no idea if I owed eight cents, or eight thousand dollars, and very little in compelling evidence to counter anything they said. I was so happy to walk away unscathed that I bolted before the guy changed his mind, LOL. You are right however, I've known a lot of contractors who ended up in deep debt to the IRS, and if you aren't trying to jerk then around, they generally return the favor.

[Dicey]

I would not recommend "just doing it anyway."

What I would recommend is consulting a tax professional. Sometimes there is more than one perfectly legal way to characterize a deduction. Worth checking out.

[RobFIRE]

Well, you should of course complete your taxes honestly and to the best of your knowledge. I would be sure with something like this that all you can claim as expenses are the rental costs and the fuel costs.

So back to the original point, sounds like you're saying that your partner covers her work driving for about $150 a month plus fuel, or less when work driving is less. So compared to leasing a car or buying and having the depreciation, insuring, maintaining etc. that looks substantially cheaper, so well done!

[Dicey]

Hmmm, where is Cpa Cat when you need her? Here kitty, kitty, kitty. I'd ask CheddarStacker, but he's busy with renos and stuff. Miss him.

[SuperMex]

I noticed this recently on a trip to Miami, I rented a full size car for two weeks and it was only $120 some dollars. I was telling my wife that for the average person it would be cheaper to rent than buy or lease.

Of course I'm not the average person I drive a 10 year old car I paid 3k cash for almost two years ago.

[CareCPA]

I would not recommend "just doing it anyway."

What I would recommend is consulting a tax professional. Sometimes there is more than one perfectly legal way to characterize a deduction. Worth checking out.

Looks like I missed this the first time around.
OP would have two options:
1. Use the rental car for work and deduct the actual costs of rental and gas, or
2. Use the rental for commuting and use the family car for business, thus deducting the standard rate.

[Dicey]

I would not recommend "just doing it anyway."

What I would recommend is consulting a tax professional. Sometimes there is more than one perfectly legal way to characterize a deduction. Worth checking out.

Looks like I missed this the first time around.
OP would have two options:
1. Use the rental car for work and deduct the actual costs of rental and gas, or
2. Use the rental for commuting and use the family car for business, thus deducting the standard rate.

Thank you, FrugalGrad!