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The IRS issues 2014 regulations limiting depreciation and lease expense on new vehicles

Mar 11Jeff Matthews

The IRS recently released the 2014 inflation adjustments for automobiles (Rev. Proc. 2014-21).  Under Sec. 280F, vehicles are subject to limitations on the depreciation that can be taken each year and the amount of lease payments that can be deducted for certain automobiles.

For a number of years, bonus depreciation has been in place to encourage the purchase of new vehicles.  In 2013, bonus depreciation allowed a taxpayer to deduct an additional $8,000 in the first year of ownership.  This benefit was allowed to expire in 2013 and is not currently in the law for future periods.

Under Sec. 280F, vehicles are divided into passenger automobiles and trucks and vans.  The depreciation limitation for passenger automobiles is unchanged in 2014 and will be subject to the following limits:

Year 1    $3,160

Year 2    $5,100

Year 3    $3,050

Year 4    $1,875   and for all future periods until the vehicle is fully depreciated

 

Trucks and vans have a higher deduction limit in 2014.

Year 1    $3,460

Year 2    $5,500

Year 3    $3,350

Year 4    $1,975   and for all future periods until the vehicle is fully depreciated

Vehicle lease payments are also subject to a limitation but the “excess” lease payments must be included in income by the lessee.  Rev. Proc. 2014-21 contains the 2014 tables for adjustments to income on luxury vehicles placed in service.  http://www.irs.gov/pub/irs-drop/rp-14-21.pdf

These rules were established in 1988 to limit the depreciation deduction for “luxury” vehicles.  However, luxury vehicles rules now kick in for new automobiles priced over $16,000 and for trucks and vans priced over $17,300.  Without additional legislative action, the rules will once again discourage the purchase of new vehicles, which many view as detrimental to the recovery of the automotive industry.

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