The IRS issued its annual inflation-adjusted update of depreciation limitations for passenger automobiles (including passenger vans and trucks) placed in service in 2021 (Rev. Proc. 2021-31). The revenue procedure similarly updates income inclusion amounts by lessees of passenger automobiles with respect to vehicles with lease terms beginning in 2021. These limits are updated annually for inflation according to the automobile component of the chained consumer price index for urban consumers.
For passenger automobiles to which bonus first-year depreciation deduction applies and that are acquired after Sept. 27, 2017, and placed in service during calendar year 2021, the depreciation limit under Sec. 280F(d)(7) is $18,200 for the first tax year (an increase of $100 from 2020); $16,400 for the second tax year (an increase of $300); $9,800 for the third tax year (an increase of $100); and $5,860 for each succeeding year (an increase of $100).
For passenger automobiles to which no bonus first-year depreciation applies, the depreciation limit under Sec. 280F(d)(7) is $10,200 for the first tax year; $16,400 for the second tax year; $9,800 for the third tax year; and $5,860 for each succeeding year.
Sec. 280F(c) limits deductions for the cost of leasing automobiles, expressed as an income inclusion amount. This limitation, calculated according to a formula and tables prescribed under Regs. Sec. 1.280F-7, is intended to be substantially equivalent to the depreciation limitation. Table 3 of Rev. Proc. 2021-31 provides income inclusion dollar amounts for lessees of passenger automobiles with a lease term beginning 2021, for each year of the lease, based on the automobile’s fair market value.
— Paul Bonner (Paul.Bonner@aicpa-cima.com) is a JofA senior editor.