March 17, 2011
IRS Sets Automobile Depreciation Deduction Limits
The IRS has recently released Revenue Procedure 2011-21 which provides limitations on depreciation deductions and lessee inclusions amounts for owners of passenger automobiles, trucks, vans, and electric automobiles first placed in service during the 2011 calendar year.
The Revenue Procedure also includes revised tables of depreciation limitations for vehicles first placed in service (or leased) during 2010 and to which bonus depreciation applies.
The Small Business Jobs Act of 2010, signed into law by President Obama in 2010, provided significant depreciation incentives by extending 50% bonus depreciation in an effort to help small businesses continue to drive the economic recovery and create jobs. At the end of 2010, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 further extended bonus depreciation through the end of 2012 and increased the bonus depreciation allowance rate from 50% to 100% for qualified property acquired after September 8, 2010, and before January 1, 2012 and placed in service before January 1, 2012. Regardless of whether assets are entitled to 50% or 100% bonus depreciation, first-year bonus depreciation applicable to vehicles is limited to $8,000. Heavy vehicles and SUVs in excess of 6,000 pounds however, are exempt from the luxury car depreciation cap.
The maximum depreciation limits for passenger automobiles placed in service in 2011 are:
- $11,060 for the first year ($3,060 if bonus depreciation is not taken);
- $4,900 for the second tax year;
- $2,950 for the third tax year; and
- $1,775 for each tax year thereafter.
The dollar limits for light trucks and vans for years one through three are $100 higher than those that applied for 2010. The maximum depreciation limits during 2011 calendar year are:
- $11,260 for the first tax year ($3,260 if bonus depreciation is not taken);
- $5,200 for the second tax year;
- $3,150 for the third tax year; and
- $1,875 for each tax year thereafter.
Lease payments for vehicles used for business are deductible in proportion to the vehicle’s business use. However, a certain amount must be added back and included in income during the year (known as the lease inclusion amount) to partially offset lease payments which may exceed the auto depreciation limits. Revenue Procedure 2011-21 also includes these tables for lease terms beginning in 2011 as well as revises the 2010 lease tables.
Further information can be found at: http://www.irs.gov/pub/irs-drop/rp-11-21.pdf
Please contact your Marcum LLP Tax Professional to learn more about automobile deductions available to your business.