IRS Issued 2018 Depreciation Dollar Limits for Passenger Autos


The IRS has released the depreciation limits for business passenger automobiles placed in service by the taxpayer in 2018, taking into account the changes made by the Tax Cuts and Jobs Act (TCJA). The IRS has also released the annual income inclusion amounts for such vehicles first leased in 2018.

For owners of passenger automobiles, Internal Revenue Code (IRC) Section 280F(a), as modified by the TCJA, imposes dollar limitations on the depreciation deduction for the year the tax- payer places the passenger automobile in service and for each succeeding year. The TCJA extended the additional (bonus) first-year depreciation deduction for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2027.

Under the TCJA, a 100% bonus first-year deduction of the adjusted basis is generally allowed for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. (For certain property with longer production periods, the end date is increased by one year). In later years, the first-year bonus depreciation deduction phases down, 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 the first tax year ending after September 27, 2017, a taxpayer can elect to claim 50% bonus first-year depreciation (instead of claiming a 100% first-year depreciation allowance). 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 2018, the first-year depreciation is increased by $6,400. For qualified property acquired and placed in service after September 27, 2017, the first-year depreciation is increased by $8,000.

The following are the annual depreciation dollar caps for vehicles that are subject to the luxury auto limits and are placed in service by the taxpayer in calendar year 2018. The TCJA provides the limits on depreciation for passenger automobiles placed in service during calendar year 2018; no adjustment for inflation applies to calendar year 2018.

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

  • $16,400 for the placed-in-service year;
  • $16,000 for the second tax year;
  • $9,600 for the third tax year; and
  • $5,760 for each succeeding year.

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

  • $18,000 for the placed-in-service year;
  • $16,000 for the second tax year;
  • $9,600 for the third tax year; and
  • $5,760 for each succeeding year.

The depreciation limits for passenger automobiles placed in service during calendar year 2018 for which no first-year bonus depreciation deduction applies are:

  • $10,000 for the placed-in-service year;
  • $16,000 for the second tax year;
  • $9,600 for the third tax year; and
  • $5,760 for each succeeding year.
Auto 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 cannot 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 (FMV) exceeds certain dollar limits. The income inclusion amount varies with the initial FMV of the leased auto and the year of the lease and is adjusted for inflation each year.

Revenue Procedure 2018-25 carries the income inclusion tables for passenger autos for which the lease term begins during calendar year 2018 and the vehicle has a FMV over $50,000. Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each tax year during which the passenger automobile is leased.

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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