Retention Cycle

A retention cycle is the length of time a vehicle is expected to be owned before it is replaced. It is used as a key input in certain mileage reimbursement programs.

In Fixed and Variable Rate (FAVR) programs, the retention cycle typically ranges from 3 to 7 years and plays a central role in calculating the depreciation portion of a driver’s fixed reimbursement.

To determine depreciation, the vehicle’s initial cost is reduced by its expected resale value, and that difference is spread over the length of the retention cycle. Shorter retention cycles generally result in higher monthly reimbursements, since vehicles tend to lose value more quickly in their early years.

Retention cycles also factor into program compliance. If a driver’s vehicle exceeds the defined retention cycle, it may fall outside program requirements and could trigger a taxable income test.

Choosing an appropriate retention cycle helps ensure reimbursements are accurate, consistent, and aligned with IRS guidelines.