20 Jun 2019 Vehicles, Auto Depreciation Limits, and Amounts
The IRS has released the depreciation deduction amounts which are pursuant to Internal Revenue Code (IRC) Section 280F. This code section discusses the depreciation deduction limits for passenger automobiles (including trucks and vans) first placed in service during 2019. For passenger autos acquired before 9/28/17 and placed in service during 2019, the depreciation limits are $10,100 for the first year ($14,900 with bonus depreciation), $16,100 for the second year, $9,700 for the third year, and $5,760 for each succeeding year. Typically bonus depreciation is taken by default for tax year 2019.
If a taxpayer is leasing a car, there are also lease inclusion amounts which is really giving the lease expense a haircut. This is discussed in Rev. Proc. 2019-26. Most small business owners use their auto’s for business. However, one needs to be careful in how they deduct the expense and depreciation of the vehicles. There are also additional considerations for luxury autos, and automobiles that weigh over 6,000 lbs., which allow for larger deductions.
Clients often ask us – “is it better to lease or purchase?” The answer is, well, it depends. Here are some quick thoughts.
If you drive a lot of miles, say over 12,000 miles a year, you will typically have to pay more or get a penalty for too many miles under a lease. However, if you like to get a new car often, then a lease might work out. Purchasing a car generally allows a business owner to deduct a large amount in the first year using accelerated depreciation, but one still needs to navigate through the depreciation limitations above. However, depreciation for vehicles above 6,000 gross vehicle weight may allow for more. Now, most of this discussion is regarding passenger auto’s and SUV’s, so if you purchase commercial vans or trucks for your business the depreciation rules and deductions are generally much larger as they are viewed as not being passenger autos.
Anyway, as one can see there are specific rules and considerations for deducting your vehicle. The IRS doesn’t allow for deductions for personal use, and personal use technically can also include commuting to and from work. So, discuss this topic with your tax advisor and make sure you understand your plan, your deductions and your risk.
For passenger autos acquired after 9/27/17 and placed in service during 2019, the depreciation limits are $10,100 for the first year ($18,100 with bonus depreciation), $16,100 for the second year, $9,700 for the third year, and $5,760 for each succeeding year. Also, the IRS has released the lease inclusion amounts for lessees of passenger autos first leased in 2019. Rev. Proc. 2019-26.