IRS releases 2021 limits for depreciation deductions for autos (authored by RSM US LLP)

Aug 10, 2021

TAX ALERT  | 

Authored by RSM US LLP

 

The IRS recently released Revenue Procedure 2021-31, providing rules for depreciating passenger automobiles.

Rev. Proc. 2021-31 provides two major updates: (1) limitations on depreciation deductions for owners of passenger automobiles placed in service in calendar year 2021, and (2) amounts that lessees must include in income for passenger automobiles first leased in 2021.

Section 280F(a) limits depreciation deductions for the year taxpayers place passenger automobiles in service, as well as succeeding years. Section 280F(d)(7) requires the IRS to adjust the depreciation limits to reflect inflation with reference to the Department of Labor’s Chained Consumer Price Index for all Urban Consumers.

Accordingly, the new revenue procedure contains three tables. Tables 1 and 2 list the permitted yearly depreciation deductions updated for 2021, which vary depending on whether bonus depreciation applies. Table 3 describes the inclusions in gross income required by Reg. section 1.280F-7(a) (applicable only to leases).

All taxpayers placing passenger automobiles in service in 2021 must use the limits in the tables below. Please see our Tax Alert on the Rev. Proc. 2019-13 safe harbor method for bonus depreciation on passenger automobiles for more detail on classifying property and using the depreciation limits.

 

Table 1: depreciation limits for passenger automobiles acquired after Sept. 27, 2017 and placed in service during calendar year 2021 for which bonus depreciation applies

Tax Year

Amount

1st Tax Year

$18,200

2nd Tax Year

$16,400

3rd Tax Year

$9,800

Each Succeeding Year

$5,860

Table 2: depreciation limits for passenger automobiles placed in service during calendar year 2021 for which bonus depreciation does not apply

Tax Year

Amount

1st Tax Year

$10,200

2nd Tax Year

$16,400

3rd Tax Year

$9,800

Each Succeeding Year

$5,860

Table 3: income inclusions for passenger automobiles with a lease term beginning in calendar year 2021

Fair Market Value of Passenger Automobile

Tax Year During Lease

Over

Not Over

1st

2nd

3rd

4th

5th & later

$51,000

$52,000

0

0

1

0

1

52,000

53,000

1

1

1

2

2

53,000

54,000

1

2

2

3

2

54,000

55,000

1

3

3

5

5

55,000

56,000

2

3

5

6

6

56,000

57,000

2

4

6

7

8

57,000

58,000

2

5

7

8

10

58,000

59,000

3

5

8

10

11

59,000

60,000

3

6

9

11

13

60,000

62,000

3

7

11

13

15

62,000

64,000

4

9

13

15

18

64,000

66,000

5

10

15

18

21

66,000

68,000

5

12

17

21

24

68,000

70,000

6

13

20

23

27

70,000

72,000

7

14

22

26

30

72,000

74,000

7

16

24

29

33

74,000

76,000

8

18

26

31

36

76,000

78,000

9

19

28

34

39

78,000

80,000

9

21

30

37

42

80,000

85,000

11

23

34

41

48

85,000

90,000

12

27

40

47

55

90,000

95,000

14

30

45

55

62

95,000

100,000

16

34

50

61

70

100,000

110,000

18

40

58

71

81

110,000

120,000

21

47

70

83

97

120,000

130,000

25

54

81

96

112

130,000

140,000

28

62

91

110

127

140,000

150,000

31

69

103

123

141

150,000

160,000

35

76

114

136

157

160,000

170,000

38

84

124

149

172

170,000

180,000

41

91

135

163

187

180,000

190,000

45

98

146

176

202

190,000

200,000

48

106

157

188

218

200,000

210,000

51

113

168

202

232

210,000

220,000

55

120

179

215

247

220,000

230,000

58

128

190

227

263

230,000

240,000

61

135

201

241

278

240,000

and over

65

142

212

254

293

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This article was written by Tracy Watkins, John Charin and originally appeared on 2021-08-10.
2021 RSM US LLP. All rights reserved.
https://rsmus.com/what-we-do/services/tax/federal-tax/tax-accounting-services/irs-releases-2021-limits-for-depreciation-deductions-for-autos.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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