Auto depreciation limitations increase

The IRS issued higher new depreciation limitations for passenger automobiles, although the increases are smaller than in the previous two years. These limits are updated annually for inflation, based on the automobile component of the chained consumer price index for urban consumers.

Rev. Proc. 2024-13, released Tuesday, contains the Sec. 280F(a) inflation-adjusted dollar limitations on depreciation deductions for passenger automobiles — including trucks and vans — acquired after Sept. 27, 2017, and placed in service during 2024, for 2024 and each succeeding tax year.

For passenger automobiles for which Sec. 168(k) additional first-year, or “bonus,” depreciation is applied, the limitation is $20,400 for the first tax year, an increase of $200 from the 2023 amount. The increase from 2021 to 2022 and 2022 to 2023 was $1,000 each year.

The succeeding-year limitations are $19,800 for the second tax year (an increase of $300 over 2023); $11,900 for the third year ($200 higher); and $7,160 for each year after that (an increase of $200). If bonus depreciation does not apply, the 2024 first-year limitation is $12,400 ($200 higher than 2023), and the succeeding years’ limitations are the same as for vehicles eligible for the bonus depreciation.

The revenue procedure also provides a table of the inflation-updated amounts for a lease term beginning in calendar 2024 by which a deduction for a leased passenger automobile must be reduced under Sec. 280F(c)(2). This limitation is expressed as an inclusion in gross income, which is determined by applying a formula to a dollar amount. The dollar amounts, for each tax year during a lease, are correlated to ranges of vehicles’ fair market value.

For the 12 months ending December 2023, the price of used cars and trucks dropped by 1.3% and the prices of new cars increased by 1%, according to the Bureau of Labor Statistics. Both percentages are seasonally unadjusted.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.