Posted by Elliot Kravitz, ATP

IRS Issues Dollar Limits for Passenger Automobile Depreciation in 2020

IRS Issues Dollar Limits for Passenger Automobile Depreciation in 2020

The IRS issued depreciation limits for commercial passenger cars placed in service by taxpayers in 2020. The IRS also released annual income inclusion values for these vehicles first leased in 2020.

Section 280F of the Federal Tax Code (IRC), as amended by the Tax Cuts and Jobs Act (TCJA), imposes limits on the allowable depreciation deduction for passenger cars for the year in which the taxpayer places the service vehicle and for each following year.

The TCJA amended Article 168 (k) of the IRC to extend the additional deduction (bonus) for the first year of depreciation for eligible property acquired and put into service after September 27, 2017, and before January 1, 2027. In general, the TCJA allows a 100% deduction premium for the first year of the adjusted base of eligible assets purchased and put into service after September 27, 2017, and before January 1, 2023.

In subsequent years, the first reduction in bonus amortization decreases by around 20% per year, as follows:

  • 80% for property put into service after December 31, 2022, and before January 1, 2024.

  • 60% for properties put into operation after December 31, 2023, and before January 1, 2025.

  • 40% for property put into operation after December 31, 2024, and before January 1, 2026

  • 20% for buildings put into service after December 31, 2025, and before January 1, 2027.

For qualified properties purchased and put into operation after September 27, 2017, section 168 (k) (2) (F) (i) of the IRC increases the first-year depreciation by $ 8,000.

 

2020 Depreciation Limits for Passenger Automobile

Here are the annual depreciation limits in dollars for vehicles subject to IRC Section 280F limits and put into service by the taxpayer during the 2020 calendar year. Depreciation Limits for Cars Purchased by the taxpayer after December 27, 2017, and put into service by the taxpayer during the calendar year 2020, to which the deduction for the first year of the premium referred to in Article 168 (k) of the IEC applies, are:

  • $ 18,100 for the year of commissioning;

  • $ 16,100 for the second fiscal year;

  • $ 9,700 for the third fiscal year; 

  • $ 5,760 for each subsequent year.

For passenger cars put into service in the calendar year 2020, for which the taxpayer is not entitled to additional depreciation in the code of article 168 (k), the depreciation limits are:

  • $ 10,100 for the year of commissioning;

  • $ 16,100 for the second fiscal year;

  • $ 9,700 for the third fiscal year; 

  • $ 5,760 for each subsequent year.


Comment

The cost of purchasing and maintaining a company car for an employee can be considered a deductible expense for the employer (who, in this case, is a taxpayer for this procedure. tax). The TCJA dramatically increased the maximum depreciation deductions for passenger automobiles. It extended the additional depreciation limit (sometimes called "bonus depreciation") for the first year, but the code's deduction limit and values may drastically reduce employer's actual tax deductions. Although not mentioned in this guide, employers who provide company cars should also consider the effect of Code § 274 (l), which does not allow deductions for travel expenses between an employee's home and workplace.


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