The IRS issued a revenue procedure providing a safe-harbor method to determine depreciation deductions for passenger automobiles that qualify for the 100% additional first-year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles under Sec. 280F.
The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, permits additional first-year depreciation (bonus depreciation) for qualified property, which includes passenger automobiles, acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027. The bonus depreciation applicable percentage generally is 100% for property acquired and placed in service between Sept. 27, 2017, through Dec. 31, 2022, and is phased down by 20 percentage points each succeeding year.
Deductions under Sec. 179, which provides an election to expense certain depreciable business assets, are also subject to Sec. 280F when they involve passenger automobiles. The safe harbor does not apply when the taxpayer elects Sec. 179 treatment.
For a passenger automobile (acquired after Sept. 27, 2017, and placed in service in 2018) that qualifies for the 100% additional first-year depreciation deduction, the TCJA increased the first-year limitation amount by $8,000 to $18,000. Earlier, in Rev. Proc. 2018-25, the IRS provided tables of first-year limitations on depreciation of autos placed in service in calendar 2018 and amounts includible in income by lessees of autos first leased during calendar 2018. If the depreciable basis of a passenger automobile for which the 100% additional first-year depreciation deduction is allowed exceeds the first-year limitation in Rev. Proc. 2018-25, the excess amount is deductible in the first tax year after the end of the recovery period.
The Rev. Proc. 2019-13 safe harbor allows depreciation deductions for the excess amount during the recovery period, subject to the depreciation limitations that apply to passenger automobiles. To implement the safe-harbor method, the taxpayer must use the depreciation table in Appendix A of IRS Publication 946, How to Depreciate Property. The safe-harbor method does not apply to a passenger automobile placed in service after 2022, one for which the taxpayer elected out of the 100% bonus depreciation, or one for which the taxpayer elected under Sec. 179 to expense all or part of the automobile's cost.
To adopt the safe-harbor method in the revenue procedure, taxpayers apply it to their depreciation deduction for a passenger automobile on their return for the first tax year following the placed-in-service year.
The revenue procedure, which amplifies Rev. Proc. 2018-25, has a number of examples illustrating how the safe harbor works.
- Rev. Proc. 2019-13
— By Sally P. Schreiber, J.D., a JofA senior editor.