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IRS Announces 2019 Automobile Depreciation Deduction Limits and Inclusion Amounts

EBIA  

EBIA  

 

Rev. Proc. 2019-26 (May 21, 2019)

Available at https://www.irs.gov/pub/irs-drop/rp-19-26.pdf

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.

The depreciation limits and inclusion amounts for passenger automobiles that a taxpayer first places in service or first leases during calendar year 2019 are presented in four tables. There are three depreciation-limit tables—one for automobiles acquired before September 28, 2017, that utilize the additional first-year depreciation deduction under Code § 168(k); another for automobiles acquired on or after September 28, 2017, that use the additional first-year depreciation deduction; and a third for automobiles for which no additional first-year depreciation deduction will be taken. The fourth table provides inclusion amounts for leased passenger automobiles with a fair market value exceeding $50,000. (This is the same threshold that applied in 2018, but many of the other values in the table differ from the 2018 amounts.) Like the 2018 tables and the recent guidance regarding the 2019 depreciation-related maximum vehicle values that limit use of the fleet-average and cents-per-mile valuation rules (see our Checkpoint article), the four tables do not distinguish among trucks, vans, and other passenger automobiles.

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 2019, the deductions continue to benefit fully from changes made by the Tax Cuts and Jobs Act, which substantially increased the maximum depreciation deductions for passenger automobiles and extended the additional first-year depreciation limit (sometimes referred to as “bonus depreciation”). Employers looking for the 2018 depreciation limits and inclusion amounts should note that the citation provided in this year’s guidance is incorrect; the 2018 limits and amounts were provided in Revenue Procedure 2018-25, and that guidance was subsequently amplified in Revenue Procedure 2019-13 by the addition of a safe harbor method of accounting for certain purchased automobiles. 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.

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