Does the Federal Tax Code Favor Driving Over Other Modes?

Renata Silberblatt for TSTC writes Complaints that transit is subsidized while roads “pay for themselves” have been proven again and again to be unfounded. But with taxes due in less than a month, Tri-State took a cursory look at available and recently-expired tax credits and deductions related to automobile and transit use in the federal tax code to see if the tax breaks being offered incentivized or had a bias towards automobile use. While we’re sustainable transportation advocates, not tax lawyers or accountants and information in this post does not constitute tax or legal advice, we did find that the federal tax code provides benefits to vehicle owners but offers limited incentives for taxpayers to take transit or bike.
(Note: Because we aren’t tax experts, readers should consult their tax advisers with respect to the availability of any of the benefits mentioned below.)
Current and Recently-Expired Credits and Deductions Associated with:

• Owning or operating a vehicle:
  • Individuals who donate vehicles to charity can receive a tax deduction.
  • Individuals who are involved in an automobile crash that is not fully reimbursed by the other driver’s insurance and is not the individual’s fault may be able to deduct the unreimbursed amount.
  • Although recently expired, individuals could previously receive tax credits for the purchase or lease of certain fuel efficient vehicles and light trucks such as fuel cell vehicles, alternative fuel vehicles and hybrid vehicles. In addition, individuals can take a tax credit for qualified fuel cell vehicles serviced in 2012.
  • Individuals who drive to work are eligible to take up to $245/month in a pre-tax deduction to cover their parking expenses.

• Commuting to work by transit/vanpool: 
  • As part of the deal to advert the fiscal cliff that passed in January, transit and vanpool riders can take up to $245/month in a pre-tax deduction to cover their commute expenses. The commuter tax benefit is a retroactive fix for 2012 (when the transit tax benefit was lessened from $230 to $125) and it is not permanent, being offered only until the end of 2013. If not made permanent, the transit tax benefit will revert to a lower level comparable to previous years. Employers of those who use transit/vanpool also benefit from this deduction.
  • Transit/vanpool riders can also take up to $245/month in a pre-tax deduction to pay for their parking expenses.

• Commuting to work by bicycle:

• An employee can be “reimbursed up to $20/month for reasonable expenses related to commuting by bicycle.” Employers of bicycling employees can also benefit from this pre-tax deduction. This reimbursement cannot be combined with any other benefit, however. For example, if one bikes and takes transit to work, one must choose one benefit over the other.

In addition, there are certain travel tax deductions available for both personal vehicle use and transit. Some examples include travelling for business purposes and medical appointments. However, these are “miscellaneous itemized deductions” and they are deductible only to the extent they exceed 2 percent of a taxpayer’s “adjusted gross income” for federal income tax purposes, so a taxpayer’s ability to claim these deductions may be limited.
Of course, many of these transit and vehicular tax breaks can be combined. Someone who takes the train  to work, has bought a hybrid vehicle and takes a bus to his medical appointments could (all IRS conditions being met) take the transit commuter benefit, the parking benefit, the fuel efficient vehicle tax credit (when this tax credit was in effect), and deduct the cost of the bus ticket to his doctor’s appointment. And certainly, encouraging Americans to purchase more environmentally-conscious vehicles — should they live in a transit desert — is not bad policy.  However, given the many benefits of vanpooling, riding transit or biking — to the environment, to drivers on the road, to the roads themselves, and, if one is biking, to one’s personal health and to healthcare costs for the community as a whole — it’s a wonder that our taxes don’t encourage these behaviors more.
 
For example, a commuter cannot take the bicycling reimbursement and commuter tax credit together. This doesn’t seem fair, given that some people bike to a transit station, or some may bike a few days a week and take transit the other days. 


As Congress begins discussions about reforming the tax code, the opportunity should be used to either create greater parity in the tax code for non-drivers or greater incentives to make smarter and more sustainable transportation choices.