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That’s a Nice Ride! What Kind of Tax Deduction Does It Get?

 

That’s a Nice Ride! What Kind of Tax Deduction Does It Get?

The IRS recently released the depreciation limits for business passenger autos that are placed in service in 2018 and are subject to the luxury auto limits (Rev. Proc. 2018-25). These updated amounts are significantly higher than in prior tax years, primarily because they reflect the TCJA’s increase in bonus depreciation from 50% to 100%.

For passenger automobiles acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer during calendar year 2018, for which 50% bonus deduction applies, the depreciation limits are:

  • $16,400 in year one
  • $16,000 in year two
  • $9,600 in year three
  • $5,760 for each succeeding year

For passenger automobiles acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2018, for which 100% bonus deduction applies, the depreciation limits are:

  • $18,000 in year one
  • $16,000 in year two
  • $9,600 in year three
  • $5,760 for each succeeding year

For passenger automobiles placed in service during calendar year 2018 for which no bonus deduction applies, the depreciation limits are:

  • $10,000 in year one
  • $16,000 in year two
  • $9,600 in year three
  • $5,760 for each succeeding year

These higher depreciation limits are not the only difference from 2017 depreciation rules for vehicles. In 2017, different depreciation deduction limits applied for trucks and vans versus passenger autos. It appears that the limits will now be the same for trucks and vans as they are for passenger autos.
Therefore, the limits above will apply to passenger autos and trucks and vans with a gross vehicle weight of 6,000 pounds or less (maximum weight rating for a loaded vehicle, as specified by the manufacturer).

If the truck or van has a gross vehicle weight of more than 6,000 pounds, it is exempt from these limits. Special-use vehicles such as ambulances, hearses, taxicabs, and a truck or van that has been specially modified so it is not likely to be used more than a de minimis amount for personal purposes are all also exempt from the limitations above, regardless of the vehicle’s weight rating.

Note that (a) if business use is less than 100%, the maximum depreciation amounts above must be reduced by the percentage of personal use, or (b) if business use is 50% or less, straight-line alternative depreciation system (ADS) depreciation is required and no bonus depreciation is allowed, meaning the last table above will apply.

If the luxury vehicle is leased rather than owned, the limitation on related tax deductions cannot be avoided. The IRS’s Rev. Proc. 2018-25 provides an updated “lease inclusion table” for vehicles with a fair market value over $50,000. This table provides the amount of the current year’s lease payment that is nondeductible for income tax purposes.

Author(s)

Christenson_Crystal
Crystal Christenson, CPA, MST
Partner
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