2013 luxury car limit

I like to discuss the Luxury Car Limits in a slightly different way by first discussing the limitations themselves.

With a 2012 overall limit of $11, 060 for a new vehicle and 3, 160 for a used vehicle, we can assume that up to $8, 000 (11160 – 3160) is allowed for bonus depreciation on a hypothetical vehicle.

If we divide the $3, 160 by 20% (first year Macrs percent), we see that the maximum post bonus depreciation price of the vehicle would be $15, 800. With bonus depreciation, a vehicle costing more than $23, 800 (15800 + 8000) would be subject to a twilight zone within the strict limitations under Sec 280F. This means that for anyone placing a new business use vehicle in service with a cost of less than $23, 800 (under 2012 law), it is up to the tax preparer to determine the maximum deduction allowed under the law.

An example of a $16, 000 vehicle with 50% bonus depreciation may be a bit confusing but also instructive.
$16, 0000 * .5 = $8, 000, the value of both bonus depreciation and the remaining basis.
$8, 000 * .2 = $1, 600, the value of the MACRS depreciation deduction.
$8, 000 + 1, 600 = $9, 600. Is there room to take additional Sec 179 deduction in this example?

Yes. $11, 160 – 9, 600 = $1, 560. But $1, 560 is not your Sec 179 deduction because Sec 179 will reduce the basis to which the GDS Macrs percentage applies. We need a little algebra to figure out what the Sec 179 deduction could be.

Unfortunately, I’m not as good at algebra as I would like to be. So, I’m going to do this the hard way and then ask for your input.
1) We know that the limit on a new vehicle is $11, 160.
2) We know that the price of the new vehicle in this example is $16, 000.
3) Mandatory Bonus Depreciation is $8, 000 leaving us with a MACRS depreciable basis of $8, 000.
4) We can compute the MACRS Depreciation with a zero value for Section 179 deduction (8000 * .2 = 1600).
5) An increase of $5 in Section 179 would be a decrease in $1 MACRS depreciable basis.

With these facts, I give you the following table: