Depreciation guidelines for vehicles and when to report them as listed property.

• Author: Mills, Scott

With the economy turning around, many businesses are expanding. This often means they are purchasing new vehicles to update their aging fleets. If these vehicles are passenger automobiles, they are listed property and are subject to limits on the amount that can be deducted for regular depreciation, as a bonus depreciation allowance, and as a Sec. 179 expense.

Application of the Limits

Due to the misleading title given to Sec. 280F (Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes), the limits on depreciation and Sec. 179 expense deductions are often referred to as the "luxury automobile" limits. However, the limits apply to any passenger automobiles (other than trucks or vans) that cost over $15,800 in 2014 and trucks and vans that qualify as passenger automobiles that cost over $17,300. This includes the vast majority of newly purchased vehicles, most of which would not be thought of as luxury automobiles in the conventional sense.

For vehicles that cost less than these amounts, the depreciation limitations do not apply because the full amount of modified accelerated cost recovery system (MACRS) depreciation allowed is less than the limitation amounts. While relatively few new vehicles are likely to escape the limits, many used vehicles will probably fall under them.

Passenger Automobiles

A passenger automobile includes any four-wheel vehicle that is manufactured primarily for use on public streets, roads, and highways, and that is rated at 6,000 pounds gross vehicle weight or less. There are two sets of depreciation limit amounts under Sec. 280F, one for passenger automobiles other than trucks and vans (autos) and one for trucks and vans, which include passenger automobiles that are built on a truck chassis, such as some minivans and sport utility vehicles (SUVs). Significantly, for autos, the 6,000-pound limit is based on the unloaded gross vehicle weight of the auto, while for trucks and vans, the 6,000-pound limit is based on loaded gross vehicle weight, which includes passengers and cargo. This means that most full-size pickups and larger vans will be over the 6,000-pound limit and not subject to the Sec. 280F depreciation limits.

Depreciation limits for autos: The depreciation limits for autos that were placed in service in 2014 and used 100% for business are shown in Exhibit 1. The 2015 amounts are expected to be released in February or March 2015.

If the auto qualifies...