United States

IRS releases guidance on passenger automobile depreciation

TAX ALERT  | 

The IRS recently released Rev. Proc. 2018-25. In this revenue procedure, the IRS provides guidance on the dollar limitations imposed by section 280F on depreciation deductions for passenger automobiles. The guidance reflects the increased limits resulting from the tax law changes for automobiles placed in service during the 2018 calendar year.

The revenue procedure contains three tables for taxpayers’ use in determining the permitted yearly depreciation deductions. These tables, included below, apply to passenger automobiles placed in service during the 2018 calendar year and vary based upon acquisition date and when bonus depreciation does not apply:1

Table 1: Bonus depreciation taken on automobile acquired before Sept. 28, 2017

REV. PROC. 2018-** TABLE 1

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES

ACQUIRED BEFORE SEPT. 28, 2017, AND PLACED IN SERVICE DURING CALENDAR YEAR 2018 FOR WHICH THE SECTION 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$ 16,400

2nd Tax Year

$ 16,000

3rd Tax Year

$ 9,600

Each Succeeding Year

$ 5,760

 

Table 2: Bonus depreciation taken on automobile acquired after Sept. 27, 2017

REV. PROC. 2018-** TABLE 2

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES ACQUIRED AFTER SEPT. 27, 2017, AND PLACED IN SERVICE DURING CALENDAR YEAR 2018, FOR WHICH THE SECTION 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$ 18,000

2nd Tax Year

$ 16,000

3rd Tax Year

$ 9,600

Each Succeeding Year

$ 5,760

 

Table 3: No bonus depreciation taken

REV. PROC. 2018-** TABLE 3

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES

PLACED IN SERVICE DURING CALENDAR YEAR 2018 FOR WHICH NO SECTION 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$ 10,000

2nd Tax Year

$ 16,000

3rd Tax Year

$ 9,600

Each Succeeding Year

$ 5,760

The revenue procedure also contains a fourth table that assists lessees of passenger automobiles in determining the appropriate income inclusion amount under Treas. Reg. section 1.280F-7(a). Taxpayers may use Table 4 to determine the appropriate dollar amount, based on fair market values, to which lessees must apply the formula found in Treas. Reg. section 1.280F‑7(a)(2): generally, a proration for number of leased days followed by a multiplication by the appropriate business/investment use percentage.

Taxpayers may view an advance release copy of Rev. Proc. 2018-25 here.

1. [These charts should not be used for automobiles placed in service either before or after the 2018 calendar year. While the tax reform provisions altering bonus depreciation were effective for assets placed in service after Sept. 27, 2017, the provisions increasing the section 280F limitations apply only to assets placed in service on or after Jan. 1, 2018. Additionally, the section 280F limitations are indexed for inflation, so taxpayers must look to future guidance for the appropriate limitations applicable to automobiles placed in service during later tax years.]

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