IRS Announces 2017 Automobile Depreciation Deduction Limits and Inclusion Amounts

The IRS has announced the inflation-adjusted Code § 280F “luxury automobile” limits on certain deductions that may be taken by taxpayers using passenger automobiles (including vans and trucks) in a trade or business. For purchased automobiles, the limits cap the taxpayer’s depreciation deduction. For leased automobiles, the limits reduce the taxpayer’s lease expense deduction by an “inclusion amount” that is calculated to make the lease deduction substantially equivalent to the depreciation deduction that would have been available if the automobile had been purchased.

Revenue Procedure 2017-29 provides tables that establish the depreciation limits and inclusion amounts for passenger automobiles that a taxpayer first places in service or first leases during calendar year 2017. The inclusion amount tables apply only to vans or trucks with a fair market value of more than $19,500 and to other passenger automobiles with a fair market value of more than $19,000. (These are the same thresholds that applied in 2016, but many of the other values in the tables differ from the 2016 tables.) Like the 2016 tables, the 2017 tables reflect legislation that extended the additional first-year depreciation deduction limit for qualified property placed in service generally before January 1, 2020. Unlike the 2016 guidance (see our Checkpoint article), this year’s revenue procedure makes no retroactive modifications to any prior year limits.

EBIA Comment: Generally, the cost of acquiring and maintaining a company car for an employee may qualify as a deductible expense for the employer (which, in that case, is the taxpayer for purposes of this revenue procedure). The Code’s deduction limits and income inclusion amounts can significantly reduce an employer’s actual tax deductions, but for 2017 those deductions continue to benefit fully from the legislation that extended the additional first-year depreciation limit. After 2017, the legislation’s $8,000 increase in the first-year depreciation limit will begin to phase out, dropping to $6,400 for vehicles first placed in service in 2018, and to $4,800 for vehicles first placed in service in 2019, before phasing out completely in 2020. For more information, see EBIA’s Fringe Benefits manual at Section IV.B (“What Are the Tax Consequences of a Company Car?”).

Contributing Editors: EBIA Staff.