Bonus depreciation safe-harbor rules for vehicles issued

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Bonus depreciation safe-harbor rules for vehicles issued

The IRS on Wednesday provided a safe-harbor method to determine depreciation deductions for passenger automobiles that qualify for the 100% additional first-year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles under Sec. 280F (Rev. Proc. 2019-13).

The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, permits additional first-year depreciation (bonus depreciation) for qualified property, which includes passenger automobiles, acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027.

Deductions under Sec. 179, which provides an election to expense certain depreciable business assets, are also subject to Sec. 280F when they involve passenger automobiles. The safe harbor does not apply when the taxpayer elects Sec. 179 treatment.

For a passenger automobile that qualifies for the 100% additional first-year depreciation deduction, the TCJA increased the first-year limitation amount by $8,000 to $18,000. If the depreciable basis of a passenger automobile for which the 100% additional first-year depreciation deduction is allowed exceeds the first-year limitation in Rev. Proc. 2018-25, the excess amount is deductible in the first tax year after the end of the recovery period.

The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to the depreciation limitations that apply to passenger automobiles. To implement the safe-harbor method, the taxpayer must use the depreciation table in Appendix A of IRS Publication 946, How to Depreciate Property. The safe-harbor method does not apply to a passenger automobile placed in service after 2022, one for which the taxpayer elected out of the 100% bonus depreciation, or one for which the taxpayer elected under Sec. 179 to expense all or part of the automobile’s cost. 

To adopt the safe-harbor method in the revenue procedure, taxpayers apply it to their depreciation deduction for a passenger automobile on their return for the first tax year following the placed-in-service year.

The revenue procedure has a number of examples illustrating how the safe harbor works and amplifies Rev. Proc. 2018-25.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.

Research & References of Bonus depreciation safe-harbor rules for vehicles issued|A&C Accounting And Tax Services
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