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Joe Fragnoli - Fragnoli and Companty CPALuxury auto limits, that is, the depreciation limits and the inclusion amounts for leases, impact many taxpayers.  The new luxury auto limits for 2014 have been announced by The Internal Revenue Service. The IRS just recently issued Rev. Proc. 2014-21 pertaining to this matter.

Under Code Sec. 280F(a), depreciation deductions allowable for passenger automobiles, trucks, and vans are limited to a maximum dollar amount each tax year. This limitation is known as the luxury automobile limitation. The amounts allowable are adjusted each year by an inflation adjustment.

The automobile price inflation adjustment for any calendar year is the percentage (if any) by which the consumer price index (CPI) automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. The new car component of the CPI was 115.2 for October 1987 and 144.169 for October 2013. The October 2013 index exceeded the October 1987 index by 28.969. Therefore, the automobile price inflation adjustment for 2014 for passenger automobiles (other than trucks and vans) is 25.1 percent (28.969/115.2 x 100%). The dollar limitations in Code Sec. 280F(a) are multiplied by a factor of 0.251, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2014.

This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2014. The inflation factors for trucks and vans are calculated in a similar fashion. The new truck component of the CPI was 112.4 for October 1987 and 151.877 for October 2013. The October 2013 index exceeded the October 1987 index by 39.477. Therefore, the inflation adjustment for 2014 for trucks and vans is 35.1 percent (39.477/112.4 x 100%).

Code Sec. 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile, truck, or van. The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of such vehicles. This reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Each table (one for passenger automobiles and one for trucks and vans) shows inclusion amounts for a range of fair market values for each tax year after the vehicle is first leased.

This week, in Rev. Proc. 2014-21, the IRS released the luxury vehicle depreciation limitations and the lease inclusion amounts for 2014.

The depreciation limitations for passenger automobiles placed in service in calendar year 2014 are:

  • 1st Tax Year – $3,160
  • 2nd Tax Year – $5,100
  • 3rd Tax Year – $3,050
  • Each Succeeding Year – $1,875.

The depreciation limitations for trucks and vans placed in service in calendar year 2014 are:

  • 1st Tax Year – $3,460
  • 2nd Tax Year – $5,500
  • 3rd Tax Year – $3,350
  • Each Succeeding Year – $1,975

If you have any questions regarding these new limits and the tax impact on you and/ or your company, please feel free to contact us at Fragnoli & Company, CPAs at (615) 377-0705 or email us at jfragnoli@jfragnolicpa.com.  Please visit our website to learn more about our Firm.