Rev. Proc. 2016-23: Luxury automobile depreciation limitations for 2016

Luxury automobile depreciation limitations for 2016

The IRS today released an advance version of Rev. Proc. 2016-23—an annual revenue procedure providing:

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  • The annual depreciation limitations for passenger automobiles first placed in service in calendar year 2016
  • The annual depreciation limits for trucks and vans first placed in service in 2016
  • The lease inclusion amounts for automobiles first leased in 2016 (as well as amounts for trucks and vans first leased in 2016)
  • Revised tables of depreciation limitations and lessee inclusion amounts for passenger automobiles first placed in service or first leased during the year and subject to the 50% additional first year depreciation deduction as extended by the PATH Act*

These amounts are provided in table format in Rev. Proc. 2016-23 [PDF 91 KB] and also below.

 

*PATH Act = Protecting Americans from Tax Hikes Act of 2015, enacted as part of the Consolidated Appropriations Act, 2016, Pub. L. No. 114-113 (December 18, 2015)

Background

Section 280F(a) sets a specific annual dollar limitation (adjusted each year for inflation) on the amount of depreciation allowed for any "passenger automobile"—generally referred to as the "luxury automobile" limitations. 

The limitations apply to four-wheeled vehicles that are manufactured primarily for use on public streets, roads, and highways, and that are rated at 6,000 pounds gross vehicle weight (GVW) or less (except for trucks and vans, a vehicle's "unloaded" GVW rating is used).

Any depreciation disallowed because of these annual limitations is allowed in years past the end of the usual depreciation schedule, though still subject to the annual limitations.

There are higher annual "luxury automobile" depreciation limitations for vans and trucks than for other passenger automobiles. For this purpose, “vans and trucks” are passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles that are built on a truck chassis.

Note that there is a complete exclusion from the annual depreciation limitations for “qualified nonpersonal use vehicles”—these are described in regulations as vans and light trucks whose design makes them “not likely to be used more than a de minimis amount for personal purposes.”

50% bonus depreciation

There are higher first-year depreciation limits for vehicles that are allowed a 50% “bonus” depreciation deduction in the year placed in service. The PATH Act included provisions that allow bonus depreciation for property acquired and placed in service after December 31, 2015, and generally before January 1, 2020. Accordingly, the additional first year depreciation deduction percentage is 50% for qualified property placed in service during 2016.

Rev. Proc. 2016-23 includes tables specifying first-year bonus depreciation amounts for vehicles placed in service in 2016 for which the additional first year depreciation deduction applies. The first-year depreciation limit, if bonus depreciation is allowed, is $8,000 higher than the general limit.  For 2016, the first-year limitation is $11,160 for passenger automobiles and $11,560 for trucks and vans.

Rev. Proc. 2016-23

The general inflation-adjusted limitations for passenger automobiles (other than trucks and vans) placed in service during 2016 are the same applied as for years 2013-2015.

Passenger automobiles:
1st tax year $3,160
2nd tax year $5,100
3rd tax year $3,050
Each succeeding tax year $1,875

 

For an automobile being depreciated under the modified accelerated cost recovery system (MACRS)—subject to a five-year recovery period and a half-year convention—the $3,160 cap serves to limit the first-year depreciation otherwise allowed for an automobile with a basis of more than $15,800.

Trucks and vans

For trucks and vans placed in service during 2016, the general inflation-adjusted limitations are as follows:

Trucks and vans:
1st tax year $3,560
2nd tax year $5,700
3rd tax year $3,350
Each succeeding tax year $2,075

 

These limits are slightly higher than the limits that applied to trucks and vans placed in service during 2015.

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