Luxury Auto depreciation Limits

The IRS has released the inflation-adjusted limitations on depreciation deductions for business-use passenger automobiles, light trucks, and vans first placed in service during calendar year 2013. Some of the depreciation limits are identical to the limits for 2012; other ceilings have increased by $100.

Background

Code Sec. 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the vehicle in service in its business, and for each succeeding year. Under Code Sec. 280F(d)(7), the IRS adjusts for inflation the amounts allowable for depreciation deductions.

The American Taxpayer Relief Act of 2012 (ATRA) generally extended 50-percent first-year bonus depreciation under Code Sec. 168(k) to qualified property acquired and placed in service by December 31, 2013 (December 31, 2014 for certain longer-lived and transportation property). For vehicles subject to the Code Sec. 280F luxury vehicle limits, first-year bonus depreciation is increased by $8, 000 (not indexed for inflation), unless the taxpayer elects out.

In Rev. Proc. 2013-21, the IRS provided depreciation limits for passenger automobiles, light trucks and vans, both for those qualifying for bonus depreciation and for those not qualifying for or electing bonus depreciation.

Passenger automobiles

The maximum depreciation limits under Code Sec. 280F for passenger automobiles first placed in service during the 2013 calendar year are:

  • $11, 160 for the first tax year ($3, 160 if bonus depreciation does not apply);
  • $5, 100 for the second tax year;
  • $3, 050 for the third tax year; and
  • $1, 875 for each succeeding tax year.

Trucks and vans

The maximum depreciation limits under Code Sec. 280F for trucks and vans first placed in service during the 2013 calendar year are:

  • $11, 360 for the first tax year ($3, 360 if bonus depreciation does not apply);
  • $5, 400 for the second tax year;
  • $3, 250 for the third tax year; and
  • $1, 975 for each succeeding tax year.

Comment: Sport Utility Vehicles (SUVs) and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6, 000 pounds continue to be exempt from the luxury vehicle depreciation caps based on a loophole in the operative definition. Congress in 2004 placed a $25, 000 limit on Code Sec. 179 expensing of heavy SUVs but has not extended it to Code Sec. 280F.

Leases

Lease payments for vehicles used for business or investment purposes are deductible in proportion to the vehicles business use. However, lessees must include a certain amount in income during the year that the vehicle is leased, to partially offset the amounts by the lease payments exceed the luxury automobile limits. Rev. Proc. 2013-21 includes tables that identify the income inclusion amounts for passenger automobiles, trucks and vans with lease terms that begin in calendar year 2013.

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