Posts Tagged ‘luxury autos’

IRS issues 2013 vehicle depreciation limits

Tuesday, February 26th, 2013 by Joe Kristan

The IRS has issued the maximum annual depreciation tables for cars placed in service in 2013 (Rev. Proc. 2013-21):



These are the Section 280F limits on so-called “luxury” cars.  They affect cars purchased for as little as $15,000.  Based on a search of Des Moines area cars, KIA is now a luxury brand.



IRS issues 2012 vehicle depreciation limits

IRS announces 2011 vehicle depreciation limits without settling “year 2″ problem in 100% bonus years.

IRS release solves ‘second year zero’ problem for auto depreciation


IRS issues 2012 vehicle depreciation limits

Monday, March 5th, 2012 by Joe Kristan

The IRS has updated the “luxury car” limits for vehicle depreciation for 2012 (Rev. Proc. 2012-23). There are two sets of limits: one for cars using bonus depreciation (only new cars qualify for that) and another for non-bonus depreciation. The tables:
Click chart to enlarge says that a Kia “Soul” base model is listed at $15,994 in the Des Moines area, making it the cheapest “luxury” vehicle available.
So live it up!
IRS announces 2011 vehicle depreciation limits without settling “year 2” problem in 100% bonus years.
IRS release solves ‘second year zero’ problem for auto depreciation


Does 100% bonus depreciation set up car buyers for a second-year surprise?

Friday, February 4th, 2011 by Joe Kristan

The 100% bonus depreciation enacted for new assets purchased after September 8 of last year is a sweet deal. You can fully deduct the cost of qualifying assets in they year they go into service, regardless of how many you buy or whether it generates a loss.
It never was a completely sweet deal for buyers of business autos. Section 280F, the “luxury car” rule, limits depreciation. For cars put in service in 2010, the first year deduction is limited to $11,060 – $3,060 plus an extra $8,000 for bonus depreciation. The limit for year two would normally be $4,900 for the second year, $2,950 in year 3, and $1,775 annually afterward until the car is fully depreciated.
But for “luxury autos” purchased after September 8, 2010, the depreciation allowed for years 2 through 6 might be… zero.

Flickr image by David McKelvey under Creative Commons license. At $15,353, the Yaris is subject to the Sec. 280F depreciation limits.

The Sec. 280F limits were written to restrict the depreciation otherwise allowable for automobiles under the normal Sec. 168 depreciation rules. One argument holds that when 100% bonus depreciation applies, the depreciation is only allowable in Year 1, unless you elect out of bonus depreciation for all assets in that class. That means the depreciation for the remaining five years of the auto period is the lesser of the Sec. 280F limits or the amounts that would otherwise apply under Sec. 168 — in the case of bonus depreciation, that means zero. Then in year seven depreciation would again be allowed under a Sec. 280F catch-up rule.
Is this what Congress had in mind? Certainly not. But the IRS is seriously considering embracing this interpretation; I spent a half hour yesterday listening to an IRS technician explain why yesterday. While the technician agreed that the result is unintended and perverse, s/he thinks the IRS may be stuck with it.
I think that an IRS that can invent a massive preparer regulation regime with the flimsiest justification and no specific legislative mandate should be able to come up with a way to depreciate cars that isn’t insane, but that’s just me. We may learn how the IRS will decide when they issue the annual inflation update for the Sec. 280F limits; that was about February 15 last year.
Is there any way to deal with this on 2010 returns?
Even if the no-second-year-depreciation rule applies, you would probably not want to elect out of bonus depreciation. You would have to make that election to all “five year property,” including passenger autos. You would lose $8,000 of your first-year depreciation, which you wouldn’t make up until the third subsequent year. If you would sell your car by then anyway, you would gain nothing.
It’s not clear to me whether you could take a Sec. 179 deduction for the $11,060 limit and elect out of bonus depreciation for the rest. If you could, you would get the full Sec. 280F depreciation for years 2 through 6, but that only works for “qualified” property under the bonus depreciation rules; I’m not sure you have “qualified” property under the bonus depreciation rules if you elect out of bonus depreciation.
The IRS could solve this by ruling that Sec. 280F operates in conjunction with Sec. 168 to allow depreciation in years 2-6, but they might not be so inclined. It might take a technical correction to fix this, and we all know how much we can count on Congress to clean up its messes.
If you think this potential IRS interpretation is silly, you should contact IRS people you know, and your local Congresscritters, to share your views.