Auto Depreciation Limits Leap with Inflation

The IRS issued sharply higher new depreciation limitations for passenger automobiles, reflecting inflation of vehicle prices in the past year. These limits are updated annually for inflation according to the automobile component of the chained consumer price index for urban consumers.

Rev. Proc. 2022-17 contains the Sec. 280F(a) inflation-adjusted dollar limitations on depreciation deductions for passenger automobiles (which includes trucks and vans) acquired after Sept. 27, 2017, and placed in service during 2022, for 2022 and each succeeding tax year.

For passenger automobiles for which Sec. 168(k) additional first-year, or "bonus," depreciation is applied, the limitation is $19,200 for the first tax year. That is an increase of $1,000 over the 2021 amount of $18,200, which was only $100 more than the 2020 amount. The succeeding-year limitations are $18,000 for the second tax year (up by $1,600 over 2021); $10,800 for the third year ($1,000 higher); and $6,460 for each year after that (an increase of $600).

If bonus depreciation does not apply, the 2022 first-year limitation is $11,200, and the succeeding years' limitations are the same as in the preceding paragraph.

The revenue procedure also provides a table of the inflation-updated amounts for a lease term beginning in calendar 2022 by which a deduction for a leased passenger automobile must be reduced under Sec. 280F(c)(2). This limitation is expressed as an inclusion in gross income, which is determined by applying a formula to a dollar amount. The dollar amounts, for each tax year during a lease, are correlated to ranges of vehicles' fair market value.

According to a March 10 news release by the Bureau of Labor Statistics, during the 12-month period ending February 2022, prices of used cars rose by 41.2% and prices of new vehicles rose by 12.34% (both percentages unadjusted seasonally).

(Source: AICPA & CIMA – CPA Letter Daily – Journal of Accountancy – March 17, 2022)