The biggest change for 2014 is that business depreciation has been significantly limited (decreased). This is mostly attributable to the elimination of “bonus depreciation” and Code Section 179 depreciation.
This is evidenced in the recently released IRS inflation-adjusted limitations on depreciation deductions for business-use passenger automobiles, light trucks, and vans first placed in service during calendar year 2014. The 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 depreciation limits on trucks and vans have increased by $100 for of the first three years.
Congress has not extended bonus depreciation to the 2014 tax year in the case of passenger vehicles. This means that although several of the limits have been adjusted upward for inflation, the total amount a taxpayer may deduct for a vehicle placed in service during 2014 is effectively $8,000 lower than for a vehicle placed in service during 2013, unless Congress provides retroactive relief this year.
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 has provided depreciation limits for passenger automobiles, light trucks and vans.
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.
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.
If you have any questions regarding 2014 depreciation and its impact on your specific situation, please do not hesitate to contact us.