IRS Issues 2012 Vehicle Depreciation Dollar Limits

The IRS has issued limitations on depreciation deductions for owners of passenger automobiles, light trucks, and vans first placed in service during calendar year 2012. Generally, depreciation deduction limits for calendar year 2012 are $100 more than the limits for calendar year 2011.

CCH Take Away: "Vehicle costs can vary dramatically and the goal of the rules is to provide a reasonable deduction for tax purposes," Michelle Koroghlanian, CPA, technical manager, American Institute of Certified Public Accountants (AICPA), told CCH. For 2012, the depreciation dollar limits also reflect 50 percent bonus depreciation under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act), Koroghlanian noted.

Background

Code Sec. 280F(a) imposes dollar limitations on the depreciation deduction for the year a taxpayer places a passenger automobile in service within a business, and for each succeeding year. Under Code Sec. 280F(d)(7), the IRS adjusts the amounts allowable as depreciation deductions for inflation.

The 2010 Tax Relief Act generally extended the 50 percent additional first-year depreciation deduction under Code Sec. 168(k) to qualified property acquired and placed in service before January 1, 2013 (January 1, 2014, for certain longer-lived and transportation property). Code Sec. 168(k)(2)(F)(i) increases the first-year depreciation allowed for vehicles subject to the Code Sec. 280F luxury-vehicle limits, unless the taxpayer elects out, by $8,000, to which the additional first-year depreciation deduction applies. The $8,000 amount is not adjusted for inflation.

In Rev. Proc. 2012-23, the IRS provides limits for passenger automobiles, light trucks, and vans for which the additional first-year depreciation deduction rules apply under Code Sec. 168(k). Rev. Proc. 2012-23 also provides limits for passenger automobiles, light trucks, and vans for which the additional first-year depreciation deduction rules do not apply under Code Sec. 168(k).

Comment: In Rev. Proc. 2011-26, the IRS provided a safe harbor to mitigate what it referred to as an "anomalous result" from the interaction of 100 percent bonus depreciation, generally available prior to 2012, and the Code Sec. 280F dollar limitations. Presumably this same safe harbor would apply if Congress decides to extend 100 percent bonus depreciation to 2012.

Passenger automobiles

The maximum depreciation limits under Code Sec. 280F for passenger automobiles first placed in service by the taxpayer during the 2012 calendar year are:

  • $11,160 for the first tax year ($3,160 if bonus depreciation is not taken);
  • $5,100 for the second tax year;
  • $3,050 for the third tax year; and
  • $1,875 for each tax year thereafter.

Trucks and vans

The maximum depreciation limits under Code Sec. 280F for trucks and vans first placed in service during the 2012 calendar year are: 

  • $11,360 for the first tax year ($3,360 if bonus depreciation is not taken);
  • $5,300 for the second tax year;
  • $3,150 for the third tax year; and
  • $1,875 for each tax year thereafter.

Comment: Sport utility vehicles and pickup trucks with a gross vehicle weight rating in excess of 6,000 pounds are exempt from the luxury vehicle depreciation caps.

Leases

Lease payments for vehicles used for business or investment purposes are deductible in proportion to the vehicle’s business use. However, lessees must include a certain amount in income during the year the vehicle is leased to partially offset the amounts by which lease payments exceed the luxury auto limits. Rev. Proc. 2012-23 includes tables that identify the income exclusion amounts for passenger automobiles, trucks, and vans with lease terms beginning in calendar year 2012.

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Published: 3/14/2012