2019 Luxury Auto Depreciation Caps and Lease Inclusion Amounts

Dear Client,

If you use your vehicle for business purposes, the IRS allows you to write off some of the vehicle's cost. By depreciating your vehicle, you deduct a specified amount of your taxable income to account for the vehicle's loss of value for each year of use. The IRS sets annual depreciation caps for luxury vehicle owners who opt for the actual cost method over the standard mileage rate.

Depreciation Caps

The luxury car depreciation caps for a passenger car placed in service in 2019 limit annual depreciation deductions to:

• $10,100 for the first year without bonus depreciation
• $18,100 for the first year with bonus depreciation
• $16,100 for the second year
• $9,700 for the third year
• $5,760 for the fourth through sixth year

The first-year cap for a passenger car acquired before September 28, 2017 and placed in service in 2019 is $14,900 if bonus depreciation is claimed.

The luxury car depreciation caps for SUVs, trucks, and vans placed in service in 2019 limit annual depreciation deductions to:

• $10,100 for the first year without bonus depreciation
• $18,100 for the first year with bonus depreciation
• $16,100 for the second year
• $9,700 for the third year
• $5,760 for the fourth through sixth year

The first-year cap for an SUV, truck, or van acquired before September 28, 2017 and placed in service in 2019 is $14,900 if bonus depreciation is claimed.

If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.

The annual cap for this excess depreciation is:

• $5,760 for passenger cars and
• $5,760 for SUVS, trucks, and vans.

Lease Inclusion Amounts

If a vehicle is first leased in 2019, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:

• $50,000 for passenger cars and
• $50,000 for SUVS, trucks, and vans.

The 2019 lease inclusion tables provide the lease inclusion amounts for each year of the lease.

The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.

Vehicles Exempt from Depreciation Caps and Lease Inclusion Amounts

The depreciation caps and lease inclusion amounts do not apply to:

• cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
• SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds

Taxpayers always have the option of using the standard mileage rates rather than calculating the actual costs of using their vehicle. The deduction is calculated by multiplying the standard mileage rate by the number of business miles traveled.

Our office can help you compare the benefits of using the business standard mileage rate or the actual expense method.

Sincerely,

Michael Patterson, CPA