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Adjusted Depreciation for Vehicles Released by IRS

04.08.2014

OLYMPUS DIGITAL CAMERAThe IRS has released the inflation-adjusted limitations on depreciation deductions for business-use passenger automobiles, light trucks, and vans first placed in service during calendar year 2014. These official depreciation limits for passenger vehicles are identical to the limits for 2013 (apart from the first year limit, which no longer includes first-year bonus depreciation). The limits for trucks and vans differ slightly.

The IRS also recently issued the maximum fair market value (FMV) amounts that designate the proper valuation rule for employees calculating fringe benefit income from employer-provided automobiles, trucks, and vans first made available for personal use in 2014.

Background

Code Sec. 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the vehicle in service in its business, and for each succeeding year. Under Code Sec. 280F(d)(7), the IRS adjusts for inflation the amounts allowable for depreciation deductions. In Rev. Proc. 2014-21, the IRS provided depreciation limits for passenger automobiles, light trucks and vans.

Passenger Automobiles

The maximum depreciation limits under Code Sec. 280F for passenger automobiles first placed in service during the 2014 calendar year are:

  • $3,160 for the first tax year;
  • $5,100 for the second tax year;
  • $3,050 for the third tax year; and
  • $1,875 for each succeeding tax year.

Trucks and Vans

The maximum depreciation limits under Code Sec. 280F for trucks and vans first placed in service during the 2014 calendar year are:

  • $3,460 for the first tax year;
  • $5,500 for the second tax year;
  • $3,350 for the third tax year; and
  • $1,975 for each succeeding tax year.

Sport Utility Vehicles (SUVs) and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds continue to be exempt from the luxury vehicle depreciation caps based on a loophole in the operative definition. Congress in 2004 placed a $25,000 limit on Code Sec. 179 expensing of heavy SUVs but has not extended it to Code Sec. 280F.

Leases

Lease payments for vehicles used for business or investment purposes are deductible in proportion to the vehicles business use. However, lessees must include a certain amount in income during the year that the vehicle is leased, to partially offset the amounts by the lease payments exceed the luxury automobile limits. Rev. Proc. 2014-21 includes tables that identify the income inclusion amounts for passenger automobiles, trucks and vans with lease terms that begin in calendar year 2014.

Fringe benefit valuation

An employer that has provided a vehicle for its employee's personal use must include the value of that personal use in the employee's income and wages as a fringe benefit under Code Sec. 61. Generally employers may calculate the value of their personal use using one of several valuation rules, including the cents-per-mile valuation rule outlined in Reg. §1.61-21(e). To use this rule, however, the fair market value of the employer-provided vehicle may not exceed an inflation-adjusted dollar amount specified in an annual IRS Notice.

Cents-per-mile valuation rule. The recently issued Notice 2014-11 states that the maximum 2014 FMV amounts for use of the cents-per-mile valuation rule are:

  • $16,000 for a passenger automobile; and
  • $17,300 for a truck or van, including passenger automobiles such as minivans and sport utility vehicles, which are built on a truck.

Under the cents-per-mile valuation rule, the total mileage for personal use of an employer-provided vehicle would be multiplied by the standard mileage allowance rate. (For 2014, the mileage allowance rate is 56 cents per mile.)

Fleet-average valuation rule. Notice 2014-11 also provides the specified dollar limits on the FMV of employer-provided automobiles for employers using the fleet-average valuation rule. This rule allows certain employers maintaining a fleet of at least 20 automobiles to value the FMV of each automobile as equal to the average value of the entire fleet. The fleet average value is the average of the FMV of all automobiles used in the fleet. The maximum FMV amounts for use of the fleet-average valuation rule in 2014 are $21,300 for a passenger automobile and $22,600 for a truck or van.

Goldsticker_Cathy2If you have any questions, please contact your Brown Smith Wallace Tax Advisor, or Cathy Goldsticker, at 314.983.1274 or cgoldsticker@bswllc.com.

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