The IRS has issued the depreciation limits for business passenger automobiles placed in service by the taxpayer in 2020. The IRS has also released the annual income inclusion amounts for such vehicles first leased in 2020.
Internal Revenue Code (IRC) Section 280F, as modified by the Tax Cuts and Jobs Act (TCJA), imposes limitations on the depreciation deduction allowed for passenger automobiles for the year the taxpayer places the vehicle in service and for each succeeding year.
The TCJA modified IRC Section 168(k) to extend the additional (bonus) first-year depreciation deduction for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2027. Generally, the TCJA allows a 100% bonus first-year deduction of the adjusted basis of qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.
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.
For qualified property acquired and placed in service after September 27, 2017, IRC Section 168(k)(2)(F)(i) increases the first-year depreciation by $8,000.
2020 Depreciation Limits for Passenger Autos
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 2020. The depreciation limits for passenger automobiles acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2020, to which the IRC Section 168(k) bonus first-year depreciation deduction applies, are:
- $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.
For passenger automobiles placed in service during calendar year 2020, for which the taxpayer is not entitled to Code Sec. 168(k) 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.
For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).