726 / What special limitations apply to calculating depreciation on automobiles and other property classified as “listed property”?

Editor’s Note: The 2017 Tax Act increased the depreciation limits under Section 280F for passenger automobiles placed into service after December 31, 2017. These rules apply to passenger automobiles for which additional first-year depreciation under IRC Section 168(k) is not claimed. The limits will be indexed for inflation for passenger automobiles that are placed in service after 2018. Computer and peripheral equipment are removed from the definition of listed property.¹ These rules are effective for property placed into service after December 31, 2017 and for tax years ending after December 31, 2017. The IRS has also released safe harbor guidance that can be relied on for passenger automobiles placed into service before 2023 (see below).

Limitations

For any passenger automobile placed in service during taxable years after June 18, 1984, the amount of the depreciation deduction, including any amount elected as an expense (see above), cannot exceed the monetary limitations as set forth under the applicable heading in the exhibit, below. Note that once the unadjusted basis of an automobile is recovered, depreciation is no longer deductible. For certain automobiles purchased after December 31, 2007 and before January 1, 2018, the first year depreciation limit was increased by $8,000.²

Property Placed in Service	First Year	Second Year	Third Year	Succeeding Years
6-19-84 through 4-2-85	$4,000	$6,000	$6,000	$6,000
4-3-85 through 1986	$3,200	$4,800	$4,800	$4,800
1987 and 1988	$2,560	$4,100	$2,450	$1,475
1989 and 1990	$2,660	$4,200	$2,550	$1,475
1991	$2,660	$4,300	$2,550	$1,575
1992	$2,760	$4,400	$2,650	$1,575
1993	$2,860	$4,600	$2,750	$1,675
1994	$2,960	$4,700	$2,850	$1,675
1995 and 1996	$3,060	$4,900	$2,950	$1,775
1997	$3,160	$5,000	$3,050	$1,775
1998	$3,160	$5,000	$2,950	$1,775
1999	$3,060	$5,000	$2,950	$1,775
2000, 2001, 2002, and 2003	$3,060	$4,900	$2,950	$1,775
2004	$2,960	$4,800	$2,850	$1,675
2005	$2,960	$4,700	$2,850	$1,675
2006	$2,960	$4,800	$2,850	$1,775
2007	$3,060	$4,900	$2,850	$1,775
2008 and 2009	$2,960	$4,800	$2,850	$1,775
2010	$3,060	$4,900	$2,950	$1,775
2011	$3,060	$4,900	$2,950	$1,775
2012	$3,160	$5,100	$3,050	$1,875
2013	$3,160	$5,100	$3,050	$1,875
2014	$3,160	$5,100	$3,050	$1,875
2015	$3,160	$5,100	$3,050	$1,875
2016	$3,160	$5,100	$3,050	$1,875
2018 (acquired before Sept. 28, 2017)	$16,400	$16,000	$9,600	$5,760
2018 (acquired after Sept. 27, 2017)	$18,000	$16,000	$9,600	$5,7601
2019 (acquired before Sept. 28, 2017)	$14,900	$16,100	$9,700	$5,760
2019 (acquired after Sept. 27, 2017)	$18,100	$16,100	$9,700	$5,760
2020	$18,100	$16,100	$9,700	$5,760
2021	$18,200	$16,400	$9,800	$5,860
2022	$19,200	$18,000	$10,800	$6,460
2023	$20,200	$19,500	$11,700	$6,960
2024	$20,400	$19,800	$11,900	$7,160
[Rev. Proc. 2024-13; Rev. Proc. 2023-14; Rev. Proc. 2022-17; Rev. Proc. 2021-31; Rev. Proc. 2020-37; Rev. Proc. 2019-26; Rev. Proc. 2018-25; Rev. Proc. 2017-29; Rev. Proc. 2016-23; Rev. Proc. 2015-19; Rev. Proc. 2014-21; Rev. Proc.2013-21; Rev. Proc. 2012-23; Rev. Proc. 2011-21; Rev. Proc. 2010-18, 2010-9 IRB 427; Rev. Proc. 2009-24, 2009-17 IRB 885; Rev. Proc. 2008-22, 2008-12 IRB 658; Rev. Proc. 2007-30, 2007-18 IRB 1104; Rev. Proc. 2006-18, 2006-12 IRB 645; Rev. Proc. 2005-13, 2005-12 IRB 759; Rev. Proc. 2004-20, 2004-13 IRB 642; Rev. Proc. 2003-75, 2003-2 CB 1018; Rev. Proc. 2002-14, 2002-1 CB 450; Rev. Proc. 2001-19, 2001-1 CB 732; Rev. Proc. 2000-18, 2000-1 CB 722; Rev. Proc. 99-14, 1999-1 CB 413; Rev. Proc. 98-30, 1998-2 CB 930; Rev. Proc. 97-20, 1997-1 CB 647; Rev. Proc. 96-25, 1996-1 CB 681; Rev. Proc. 95-9, 1995-1 CB 498; Rev. Proc. 94-53, 1994-2 CB 712; Rev. Proc. 93-35, 1993-2 CB 472; Rev. Proc. 92-43, 1992-1 CB 873; Rev. Proc. 91-30, 1991-1 CB 563; Rev. Proc. 90-22, 1990-1 CB 504; Rev. Proc. 89-64, 1989-2 CB 783; IRC § 280F(a).]

The dollar limitations are determined in the year the automobile is placed in service and are subject to an inflation adjustment (rounded to the nearest multiple of $100) for the calendar year in which the automobile is placed in service.³ The dollar amounts in the table above apply in situations where additional first year depreciation applies.

Leased Passenger Automobiles

Taxpayers who lease passenger automobiles and are allowed a deduction for the lease are required to reduce the deduction if the fair market value of the automobile is greater than a certain amount. For lease terms beginning in 2015, the amount was $18,500, and for 2016-2017, the amount was $19,000.⁴ For 2018 and later years, the amount is increased significantly to $50,000 ($62,000 in 2024, $60,000 in 2023 and $56,000 in 2022, as indexed for inflation).⁵

This reduction is accomplished by including in gross income an amount determined from tables promulgated by the IRS. The amount to be added to income is dependent on the fair market value of the automobile at the time the lease term begins. The higher the value of the automobile, the more that is added to income.⁶ “Passenger automobiles” do not include ambulances, hearses, trucks, vans or other vehicles used by a taxpayer in a trade or business of transporting persons or property for compensation or hire.⁷

The amount of the depreciation deduction is also limited for “listed property” placed in service (or leased) after June 18, 1984 (generally) if the business use of the property does not exceed 50 percent of its total use during the taxable year.⁸ “Listed property” includes any passenger automobile or other property used for transportation (generally, unless used in the transportation business); any property of a type used for entertainment, recreation or amusement; any computer (except computers used exclusively at a regular business establishment or at a dwelling unit that meets the home office requirement); any cellular telephone or similar equipment (but only for tax years that begin before January 1, 2010); or other property specified by the regulations.⁹ In the case of passenger automobiles, this personal use limitation is applied after the passenger automobile limitation, above.¹⁰

If the business use of the listed property does not exceed 50 percent, depreciation under the regular pre-1987 ACRS and post-1986 ACRS is not allowed. For such property placed in service after 1986, the amount of the depreciation deduction is limited to that amount determined using the alternative depreciation system (see Q 717).¹¹ For such property placed in service after June 18, 1984 and before 1987, the amount of the recovery is generally limited to that amount determined using the straight line method over the following earnings and profit lives:¹²

In the case of:	The applicable recovery period is:
3-year property	5 years
5-year property	12 years
10-year property	25 years
15-year public utility property	35 years
19-year real prop. and low income housing	40 years

The more-than-50 percent business use requirement must be met solely by use of the listed property in a trade or business, without regard to the percentage of any use in another income producing activity. However, the percentage of use in any other income producing activity is added to the business use when determining the unadjusted basis of the property subject to depreciation (the unadjusted basis is the same as the initial basis, described above). If the listed property meets the more-than-50 percent business use requirement in the year it is placed in service and ceases to do so in a subsequent year, then any “excess depreciation” will be recaptured and included in gross income in the year it ceases to meet the requirement. “Excess depreciation” is the excess, if any, of the depreciation allowable while the property met the business use requirement over the depreciation that would have been allowable if the property had not met the requirement for the taxable year it was placed in service.¹³ This excess depreciation recapture is distinct from the depreciation recapture that occurs on early disposition; see Q 727.

Safe Harbor

The IRS has released safe harbor guidance that taxpayers can rely upon in depreciating passenger automobiles under the provisions of the 2017 tax reform legislation. Assuming the depreciable basis of the passenger automobile is less than the first year limitation, the additional amount is generally deductible in the first tax year after the end of the recovery period. Under the safe harbor, however, the taxpayer can take the depreciation deductible for the excess amounts during the recovery period up to the limits applicable to passenger autos during this time frame. The IRS will publish a depreciation table in Appendix A of Publication 946, which taxpayers must use to apply the safe harbor. The safe harbor only applies to passenger autos placed into service before 2023, and does not apply if (1) the taxpayer elected out of 100 percent first year depreciation or (2) elected to expense the automobile under Section 179.¹⁴