skip to main content
X

Leaving Website Disclosure

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

To remain at our site, click BACK. To leave our site for the link you selected, click OK.

Thank you for visiting UHY website.

Services

Tax

We’re committed to relieving the tax burdens of businesses, individuals, and families. With a careful assessment of your situation, our tax professionals develop a uniquely customized strategy for your tax planning needs with the objective of minimizing your tax liability. 

IRS ISSUES BONUS DEPRECIATION SAFE HARBOR RULES FOR VEHICLES

June 7, 2019

IRS ISSUES BONUS DEPRECIATION SAFE HARBOR RULES FOR VEHICLES

The IRS issued Revenue Procedure 2019-13, which provides a safe harbor method for determining depreciation deductions for passenger automobiles that qualify for the 100% additional first year depreciation deduction under section 168(k) and that are subject to the depreciation limitations for passenger automobiles under section 280F.

Section 280F limits the amount of depreciation that may be deductible on luxury automobiles. For instance, the amount of depreciation that may be deducted is as follows: $10,000 in the first taxable year, $16,000 in the second taxable year, $9,600 in the third taxable year, and $5,760 in each succeeding taxable year. For taxpayers electing bonus depreciation under section 168(k), the amount of deduction for the first year is increased to $18,000. 

Under section 280F any disallowed depreciation due to the above limitations is carried forward and allowed as a deduction, subject to the $5,760 limit above, in the years subsequent to the recovery period of the automobile, which is generally five years. Without the Revenue Procedure, unless the taxpayer elects out of bonus depreciation, every luxury automobile would be subject to this limitation.

Example: In 2018 taxpayer purchases a luxury automobile for $60,000. Taxpayer is entitled to $60,000 of bonus depreciation. However, due to the limitations under section 280F, the taxpayer will only be allowed to deduct $18,000 of depreciation. Furthermore the $42,000 of disallowed depreciation deduction ($60,000 bonus less $18,000 allowed) will carry forward and will be allowed as a deduction beginning in 2024.

The IRS issued the Revenue Procedure to provide relief to taxpayers  limited to the amount of depreciation under the above example. The safe harbor within the Revenue Procedure will allow depreciation deductions during the recovery period for the excess depreciation which exceeds the first-year limitation amount. 

Example: In 2018 taxpayer purchases a luxury automobile for $60,000. Taxpayer is entitled to $60,000 of bonus depreciation. However, due to the limitations under section 280F, the taxpayer will only be allowed to deduct $18,000 of depreciation. By applying the safe harbor under Revenue Procedure 2019-13, the taxpayer will be able to depreciate the remaining adjusted basis of $42,000 ($60,000 cost less $18,000 depreciation allowed) in 2019 and subsequent years. The safe harbor will allow the taxpayer to depreciate much quicker than allowed under the previous example.

Taxpayers may adopt the safe harbor method of accounting by applying it to depreciation of a passenger automobile on their return for the first tax year following the placed-in-service year.

The safe harbor method does not apply to a passenger automobile for which the taxpayer elected out of the 100% additional first year depreciation deduction or elected under section 179 to expense all or a portion of the cost, or one placed in service after 2022. 

Hide Firm Disclaimer

©2020 UHY LLP. ALL RIGHTS RESERVED.

UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of "UHY Advisors." UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. "UHY" is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.