The IRS updated the fleet-average and vehicle cents-per-mile valuation rules described in Regs. Secs. 1.61-21(d) and (e), respectively, to align the limitations on the maximum vehicle fair market values (FMVs) for use of these special valuation rules with recent statutory changes made to the depreciation limitations in Sec. 280F (T.D. 9893). The regulations finalize, without substantive change, proposed regulations (REG-101378-19) issued in May 2019.
Consistent with the substantial increase in the dollar limitations on depreciation deductions under Sec. 280F(a), the regulations increase, effective for the 2018 calendar year, the maximum base FMV of a vehicle for use of the fleet-average or vehicle cents-per-mile valuation rule to $50,000. The regulations provide that this $50,000 base value will be adjusted annually for inflation, using the adjustment in Sec. 280F(d)(7), for 2019 and subsequent years. Notice 2020-05 provided that the inflation-adjusted amount for 2020 is $50,400, unchanged from 2019.
When an employer provides an employee with a vehicle that he or she can drive for personal use, the employee must include the value of the personal use in his or her income. Two methods may be used to calculate the value of an employee’s personal use of an employer-provided vehicle (as long as certain requirements are met): the cents-per-mile valuation rule and the fleet-average valuation rule. These methods are not permitted if the vehicle’s FMV exceeds specified base values on the first date the vehicle is made available to the employee.
The final regulations also contain transition rules for employers that were not able to use the fleet-average valuation rule or the cents-per-mile valuation rule or that were not able to switch from the commuting valuation rule of Regs. Sec. 1.61-21(f) to the cents-per-mile valuation rule, for vehicles placed in service before calendar year 2018, because of the maximum value requirement in Regs. Sec. 1.61-21(d), in the case of the fleet-average valuation rule, or the maximum FMV of a vehicle requirement in Regs. Sec. 1.61-21(e), in the case of the cents-per-mile valuation rule.
Under the transition rules, employers that did not qualify for the fleet-average valuation rule due to the maximum value requirement prior to Jan. 1, 2018, may adopt the rule in 2018 or 2019, provided the FMV of the automobile did not exceed $50,000 on Jan. 1, 2018, or $50,400 on Jan. 1, 2019, respectively. Employers that could not use the cents-per-mile valuation rule, or were unable to switch from the commuting valuation rule to the cents-per-mile valuation rule prior to Jan. 1, 2018, may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year, provided the vehicle’s FMV did not exceed $50,000 on Jan. 1, 2018, or $50,400 on Jan. 1, 2019, respectively.
— Sally Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.