Auto depreciation limitations make a big leap for second year in a row

By Martha Waggoner

For the second year in a row, the IRS has issued sharply higher new depreciation limitations for passenger automobiles. These limits are updated annually for inflation according to the automobile component of the chained consumer price index for urban consumers.

Rev. Proc. 2023-14, released Wednesday, contains the Sec. 280F(a) inflation-adjusted dollar limitations on depreciation deductions for passenger automobiles — including trucks and vans — acquired after Sept. 27, 2017, and placed in service during 2023, for 2023 and each succeeding tax year.

For passenger automobiles for which Sec. 168(k) additional first-year, or "bonus," depreciation is applied, the limitation is $20,200 for the first tax year, an increase of $1,000 from the 2022 amount, which also was an increase of $1,000 from the 2021 amount.

The succeeding-year limitations are $19,500 for the second tax year (an increase of $1,500 over 2022); $11,700 for the third year ($900 higher); and $6,960 for each year after that (an increase of $500). If bonus depreciation does not apply, the 2023 first-year limitation is $12,200 ($1,000 higher than 2022), and the succeeding years' limitations are the same as for vehicles eligible for the bonus depreciation.

The revenue procedure also provides a table of the inflation-updated amounts for a lease term beginning in calendar 2022 by which a deduction for a leased passenger automobile must be reduced under Sec. 280F(c)(2). This limitation is expressed as an inclusion in gross income, which is determined by applying a formula to a dollar amount. The dollar amounts, for each tax year during a lease, are correlated to ranges of vehicles' fair market value.

For the 12 months ending December 2022, the price of used cars and trucks dropped by 8.8% while the prices of new cars increased by 5.9%, according to the Bureau of Labor Statistics. Both percentages are seasonally unadjusted.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

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