Proposed Regulations Update Fleet-Average, Vehicle Cents-Per-Mile Valuation Rules
Proposed regulations increase a vehicle’s maximum value for eligibility to use the fleet-average valuation rule or the vehicle cents-per-mile valuation rule. The increase to $50,000 is effective for the 2018 calendar year. The maximum value is adjusted annually for inflation after 2018. The proposed regulations provide transition rules for certain employers.
Taxpayers may rely on the proposed regulations until final regulation amendments are published in the Federal Register.
Depreciation Limits Increased, Inflation Calculation Changed
The Tax Cuts and Job Act substantially increased the maximum annual dollar limitations on the depreciation deductions for passenger automobiles. The new dollar limitations are based on the depreciation, over a five-year recovery period, of a passenger automobile with a cost of $50,000. As a result, the IRS issued Notice 2019-8, I.R.B. 2019-3, 354, providing that it intends to amend Regulation Section 1.61-21(d) and (e) to:
- incorporate a higher base value of $50,000 as the maximum value for use of the vehicle cents-per-mile and fleet-average valuation rules, effective for the 2018 calendar year; and
- adjust the $50,000 base value annually for inflation in 2019 and subsequent years.
Additionally, the Notice provides that the IRS will not publish separate maximum values for trucks and vans for use with the fleet-average and vehicle cents-per-mile valuation rules. For tax years beginning after December 31, 2017, inflation adjustments for these purposes are calculated using both the consumer price index (CPI) automobile component and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) automobile component. The C-CPI-U automobile component does not currently have separate components for new cars and new trucks.
The IRS later issued Notice 2019-34, I.R.B. 2019-22, 1257, to:
- provide a 2019 inflation increase to $50,400 for these amounts; and
- announce it would revise Reg. §1.61-21(d) to provide a transition rule for certain employers.
The proposed regulations include the following transition rules.
Fleet-average valuation rule. If an employer did not qualify to use the fleet-average valuation rule prior to January 1, 2018, because the automobile’s fair market value exceeded the inflation-adjusted maximum value requirement for the year the automobile was first made available to the employee for personal use, the employer may adopt the fleet-average valuation rule for 2018 or 2019, provided the fair market value of the automobile does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.
Vehicle cents-per-mile valuation rule. An employer that did not qualify to adopt the vehicle cents- per-mile valuation rule for a vehicle first made available to an employee for personal use before calendar year 2018 may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year for the vehicle if:
- the employer did not qualify to adopt the vehicle cents-per-mile valuation rule because the vehicle’s fair market value exceeded the inflation-adjusted limitation for the year the vehicle was first used by the employee for personal use; and
- the vehicle’s fair market value does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.
Similarly, if the employer first used the commuting valuation rule, the employer may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year if:
- the employer did not qualify to switch to the vehicle cents-per-mile valuation rule on the first day on which the commuting valuation rule was not used because the vehicle’s fair market value exceeded the inflation-adjusted limitation for the year the commuting valuation rule was first not used; and
- the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.
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