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New Depreciation Deduction Limits for Passenger Automobiles

The IRS has issued the depreciation limits for business passenger automobiles placed in service in 2019. IRS has also released the annual income inclusion amounts for such vehicles first leased in 2019.

The Tax Cuts and Jobs Act (TCJA) modified Internal Revenue Code (IRC) Section 168(k) to extend the additional (bonus) first-year depreciation deduction for qualified property acquired and placed in service between September 28, 2017 and December 31, 2026. Generally, the TCJA allows a 100% bonus first-year deduction of the adjusted basis of qualified property acquired and placed in service between September 28, 2017 and December 31, 2022. In later years, the first-year bonus depreciation deduction declines approximately 20% per year, as follows:

  • 80% for property placed in service after December 31, 2022, and before January 1, 2024.
  • 60% for property placed in service after December 31, 2023, and before January 1, 2025.
  • 40% for property placed in service after December 31, 2024, and before January 1, 2026.
  • 20% for property placed in service after December 31, 2025, and before January 1, 2027.

In the case of a passenger automobile, for qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer during 2019, IRC Section 168(k)(2)(F)(iii) increases the first-year depreciation by $4,800. For qualified property acquired and placed in service after September 27, 2017, the first-year depreciation allowed is $8,000.

The following are the annual depreciation dollar caps for vehicles that are subject to the limits in IRC Section 280F and are placed in service by the taxpayer during calendar year 2019.

Passenger automobiles acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer during 2019, to which the first-year bonus depreciation deduction applies:

  • $14,900 for the placed-in-service year;
  • $16,100 for the second tax year;
  • $9,700 for the third tax year; and
  • $5,760 for each succeeding year.

Passenger automobiles acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2019, to which the first-year bonus depreciation deduction applies:

  • $18,100 for the placed-in-service year;
  • $16,100 for the second tax year;
  • $9,700 for the third tax year; and
  • $5,760 for each succeeding year.

Passenger automobiles placed in service during calendar year 2019, for which the taxpayer is not entitled to bonus depreciation, the depreciation limits are:

  • $10,100 for the placed-in-service year;
  • $16,100 for the second tax year;
  • $9,700 for the third tax year; and
  • $5,760 for each succeeding year.

A taxpayer who leases a business auto may deduct the part of the lease payment representing business/investment use. If business/investment use is 100%, the full cost of the lease is deductible. However, lessees must include a certain amount in income for each year of the lease to partially offset the lease deduction. The income inclusion amount varies with the initial fair market value of the leased auto and the year of the lease and is adjusted for inflation each year.

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

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