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IRS Issues 2016 Auto, Light Truck and Van Depreciation Dollar Limits

The IRS has released the inflation-adjusted Internal Revenue Code (IRC) Section 280F depreciation limits for business autos, light trucks and vans (including minivans) placed in service by the taxpayer in 2016, as well as the annual income inclusion amounts for such vehicles first leased in 2016.

Year-by-year limits for 2016
There are four sets of dollar limits for vehicles placed in service by the taxpayer in 2016. Two are for passenger autos that are not trucks or vans and are subject to the luxury auto limits of IRC Section 280F (they are rated at 6,000 pounds unloaded gross vehicle weight or less). One set of limits applies to autos for which the bonus depreciation rules do not apply under IRC Section 168(k) (the auto is pre-owned or not used more than 50% for business, the taxpayer elects out of IRC Section 168(k) or elects to increase its IRC Section 53 alternative minimum tax (AMT) credit limit instead of claiming bonus first year depreciation). The other set of limits applies to autos for which the bonus depreciation rules do apply. There also are two sets of limits for light trucks or vans (passenger autos built on a truck chassis, including minivans and sport-utility vehicles (SUVs) built on a truck chassis) that are subject to the luxury auto limits (they are rated at 6,000 pounds gross (loaded) vehicle weight or less). (IRC Section 280F(d)(5)(A)) One set of limits applies to light trucks and vans for which the bonus depreciation rules do not apply under IRC Section 168(k). The other set of limits applies to light trucks and vans for which the bonus depreciation rules do apply. Certain non-personal-use vehicles are exempt from the luxury auto limits regardless of their weight.

The following are the annual depreciation dollar caps for vehicles that are subject to the luxury auto limits of IRC Section 280F and placed in service by the taxpayer in calendar year 2016.

If the bonus first-year depreciation rules do not apply to an auto (not a truck or van):

  • $3,160 for the placed in service year;
  • $5,100 for the second tax year;
  • $3,050 for the third tax year; and
  •  $1,875 for each succeeding year.

If the bonus depreciation rules do apply to an auto (not a truck or van):

  • $11,160 for the placed in service year;
  • $5,100 for the second tax year;
  • $3,050 for the third tax year; and
  • $1,875 for each succeeding year.

If the bonus depreciation rules do not apply to a light truck or van (passenger auto built on a truck chassis, including minivan and sport-utility vehicle (SUV) built on a truck chassis):

  • $3,560 for the placed in service year;
  • $5,700 for the second tax year;
  • $3,350 for the third tax year; and
  • $2,075 for each succeeding year.

If the bonus depreciation rules do apply to a light truck or van:

  • $11,560 for the placed in service year;
  • $5,700 for the second tax year;
  • $3,350 for the third tax year; and
  • $2,075 for each succeeding year.

Lease income inclusion tables
A taxpayer that leases a business auto may deduct the part of the lease payment representing business/investment use. If business/investment use is 100%, the full lease cost is deductible. So that lessees can’t avoid the effect of the luxury auto limits, however, they must include a certain amount in income during each year of the lease to partially offset the lease deduction, if the vehicle’s fair market value exceeds certain dollar limits. ( IRC Section 280F(c) ) 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.

Tables 5 and 6 of Rev Proc 2016-23 carry the income inclusion tables for passenger autos with a lease term beginning in 2016 and a fair market value over $19,000, and light trucks and vans with a lease term beginning in 2016 with a fair market value over $19,500.

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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