San Francisco Tax Preparation / CPA: 2020 Luxury Auto Depreciation Caps and Lease Inclusion Amounts Issued

Filed in CCH NEWS FEED by on August 11, 2020

The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2020, and the lease inclusion amounts for business vehicles first leased in 2020. The limits and amounts apply to “passenger automobiles,” which include cars, trucks, vans and sports utility vehicles (SUVs).

Luxury Passenger Automobile Depreciation Caps
The luxury car depreciation caps for a passenger automobile placed in service in 2020 limit annual depreciation deductions to:

  • $10,100 for the first year without bonus depreciation;
  • $18,100 for the first year with bonus depreciation;
  • $16,100 for the second year;
  • $9,700 for the third year;
  • $5,760 for each succeeding year.

Luxury Vehicle Excess Depreciation
If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends. The annual cap for this excess depreciation for passenger automobiles is $5,760.

Lease Inclusion Amounts
If a vehicle is first leased in 2020, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than $50,000 for a passenger automobile.

The 2020 lease inclusion tables provide the lease inclusion amounts for each year of the lease. The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.

Exempt Vehicles
The depreciation caps and lease inclusion amounts do not apply to:

  • cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
  • SUVs, trucks, and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.

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