IRS Issues 2016 and Revised 2015 Vehicle Depreciation Limits

The IRS on Friday issued guidance providing revised limits for the amount of depreciation taxpayers can take for the first year they use a passenger automobile (including a truck or van) for business in 2015 and the new depreciation limits for 2015. The guidance also includes the lease inclusion amounts that vehicle lessees must include in income for 2016 (Rev. Proc. 2016-23).

The revisions apply to passenger vehicles that were placed in service during 2015 and to which 50% bonus depreciation applies. They were necessitated by retroactive extension of bonus depreciation for 2015 by the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113. Accordingly, the first-year depreciation limitation for 2015 is increased by $8,000. For passenger automobiles (other than trucks or vans) placed in service during calendar 2015 to which 50% bonus depreciation applies, the depreciation limit under Sec. 280F(d)(7) is $11,160 for the first year. The corresponding figure for trucks and vans is $11,460.

For passenger automobiles (other than trucks or vans) placed in service in service during calendar 2016 to which bonus depreciation does not apply, the depreciation limit under Sec. 280F(d)(7) is $3,160 for the first tax year; $5,100 for the second year; $3,050 for the third year; and $1,875 for each successive year. For passenger automobiles (other than trucks or vans) placed in service in service during calendar 2016 to which bonus depreciation applies, the first year limit is $11,160; the limits for the other years are the same.

For trucks and vans to which bonus depreciation does not apply, the limit is $3,560 for the first tax year; $5,700 for the second tax year; $3,350 for the third tax year; and $2,075 for each successive tax year. For trucks and vans to which bonus depreciation applies, the first year limit is $11,560; the limits for the other years are the same.

Sec. 280F(c) limits deductions for the cost of leasing automobiles, expressed as an income inclusion amount according to a formula and tables prescribed under Regs. Sec. 1.280F-7. The revenue procedure provides an updated table of the amounts to be included in income by lessees of passenger automobiles and another for trucks and vans, in both cases with lease terms that begin in calendar year 2016.

—Paul Bonner (pbonner@aicpa.org) is a Tax Adviser senior editor.