IRS Issues Revised Passenger Vehicle Depreciation Limits

On February 6, the IRS issued Rev. Proc. 2015-19, which provides guidance on the inflation-adjusted limitations on the amount of depreciation taxpayers can take for the first year they use a passenger automobile, a light truck, or a van for business purposes in 2014; along with modifications of the figures for 2015.

The revised numbers for these “luxury automobile” limits were needed to reflect the Tax Increase Prevention Act (TIPA) of 2014, which retroactively extended 50% first-year bonus depreciation to the beginning of 2014, but did not extend it for 2015. Under TIPA, the first-year depreciation limit for 2014 for passenger automobiles to which 50% bonus depreciation applies is $8,000 higher than the general limit under Section 280F of the Internal Revenue Code (IRC). Section 280F sets specific limits on depreciation deductions for passenger cars, trucks and vans, and these limits are adjusted for inflation each year.

The revenue procedure states that for passenger vehicles other than trucks or vans placed in service during calendar year 2014 to which bonus depreciation applies, the first-year depreciation limit is set at $11,160. The first-year depreciation limit for trucks and vans to which bonus depreciation applies is set slightly higher, at $11,460. By contrast, for 2015 the depreciation limits under Section 280F for passenger automobiles other than trucks or vans placed in service during that calendar year are $3,160 for the first tax year, $5,100 for the second tax year, $3,050 for the third tax year, and $1,875 for each successive tax year. For light trucks and vans, the limits are $3,460 for the first tax year, $5,600 for the second tax year, $3,350 for the third tax year, and $1,975 for each successive tax year.

Thus, while several of the 2015 limits have been adjusted upward for inflation, the total amount a taxpayer may deduct for a vehicle placed in service during 2015 will effectively be $8,000 lower than for a vehicle placed in service during 2014, unless Congress takes action to provide retroactive relief for 2015.

The revenue procedure also includes updated tables of the income inclusion amounts for lessees of vehicles with lease terms that begin in calendar year 2015, with separate tables for passenger automobiles and for trucks and vans. Under Section 280F, lease payments for vehicles used for business or investment purposes are deductible in proportion to the business use of the vehicles. Lessees are, however, required to include a certain amount in income during the year in which the vehicle is leased to partially offset the amounts by which the lease payments exceed the passenger automobile limits.

Meanwhile, sport utility vehicles and pickup trucks manufactured primarily for use on public streets, roads, and highways, and which have a gross vehicle weight rating (GVWR) of between 6,000 and 14,000 pounds, continue to be exempt from the luxury vehicle depreciation limits based on a loophole in the operative definition. Since 2004 a $25,000 Section 179 expensing limit has applied to these heavy SUVs, but this limit has not extended it to the luxury vehicles covered under Section 280F.