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IRS issues 2011 depreciation dollar limits for business autos, light trucks & vans

posted Mar 2, 2011, 6:32 AM by NPROSS Administrator   [ updated Mar 2, 2011, 6:32 AM ]

Rev Proc 2011-21, 2011-12 IRB

IRS has released the inflation-adjusted Code Sec. 280F depreciation limits for business autos, light trucks and vans (including minivans) placed in service in 2011, and the annual income inclusion amounts for such vehicles first leased in 2011. The maximum annual depreciation deduction limits for autos are the same as for vehicles placed in service last year, but the dollar limits for light trucks and vans for years one through three are $100 higher than those that applied for 2010. IRS also made changes to the luxury auto figures for 2010 to reflect the bonus depreciation allowance in the Small Business Jobs Act.

Recent legislation's effect on luxury auto limits. First-year luxury auto dollar limits are enhanced for new vehicles bought and placed in service in 2010 or 2011, and otherwise eligible for bonus depreciation. If bought and placed in service after Dec. 31, 2009 and before Sept. 9, 2010, 50% bonus first-year depreciation applies under the Small Business Jobs Act (P.L. 111-240). If bought and placed in service after Sept. 8, 2010, and before Jan. 1, 2012, then 100% bonus first-year depreciation applies under the 2010 Tax Relief Act ( P.L. 111-312). Unless a taxpayer elects out, for autos, light duty trucks or vans that are subject to theCode Sec. 280F luxury-auto limits, and are qualified property under the bonus depreciation rules of Code Sec. 168(k), the regular first-year dollar limit for 2010 as well as 2011 is increased by $8,000. (Code Sec. 168(k)(2)(F)(i))

Year-by-year limits for 2011. There are four sets of dollar limits for vehicles placed in service in 2011. Two are for passenger autos that are not trucks or vans and are subject to the luxury-auto limits of Code Sec. 280F (they are rated at 6,000 pounds unloaded gross vehicle weight or less). One set of limits applies to autos for which the bonus depreciation rules don't apply under Code Sec. 168(k) (the auto is pre-owned or not used more than 50% for business, the taxpayer elects out of Code Sec. 168(k) or elects to increase its Code Sec. 53 AMT credit limit instead of claiming bonus depreciation); the other set of auto limits applies to autos for which the bonus depreciation rules do apply.

There also are two sets of limits for light trucks or vans (passenger autos built on a truck chassis, including minivans and sport-utility vehicles (SUVs) built on a truck chassis) that are subject to the luxury-auto limits (they are rated at 6,000 pounds gross (loaded) vehicle weight or less). (Code Sec. 280F(d)(5)(A)) One set of limits applies to light trucks and vans for which the bonus depreciation rules don't apply under Code Sec. 168(k) ; the other set of auto limits applies to light trucks and vans for which the bonus depreciation rules do apply. Certain non-personal-use vehicles are exempt from the luxury auto limits regardless of their weight.

The following are the annual depreciation dollar caps for vehicles that are subject to the luxury-auto limits of Code Sec. 280F and placed in service in calendar year 2011.

If the bonus depreciation rules don't apply to an auto (not a truck or van):

·         $3,060 for the placed in service year;

·         $4,900 for the second tax year;

·         $2,950 for the third tax year; and

·         $1,775 for each succeeding year.

If the bonus depreciation rules do apply to an auto (not a truck or van):

·         $11,060 for the placed in service year;

·         $4,900 for the second tax year;

·         $2,950 for the third tax year; and

·         $1,775 for each succeeding year.

 

RIA observation: The dollar figures for autos placed in service in 2011 are the same as those that applied for autos placed in service in 2010.

If the bonus depreciation rules don't apply to a light truck or van (passenger auto built on a truck chassis, including minivan and sport-utility vehicle (SUV) built on a truck chassis):

·         $3,260 for the placed in service year;

·         $5,200 for the second tax year;

·         $3,150 for the third tax year; and

·         $1,875 for each succeeding year.

If the bonus depreciation rules do apply to a light truck or van:

·         $11,260 for the placed in service year;

·         $5,200 for the second tax year;

·         $3,150 for the third tax year; and

·         $1,875 for each succeeding year.

 

RIA observation: The 2011 dollar figures for a light truck or van are $100 higher in years one through three than those that applied for 2010. The succeeding year figure stays the same.

RIA caution: The dollar limits must be reduced proportionately if business/investment use of a vehicle is less than 100%.

 

RIA observation: IRS left open the possibility that there may be more changes coming for 2011. Rev Proc 2011-21 says that IRS intends to issue additional guidance addressing the interaction between the 100% additional first-year depreciation deduction and Code Sec. 280F(a) for the tax years subsequent to the first taxable year.

 

RIA observation: Heavy SUVs—those that are built on a truck chassis and are rated at more than 6,000 pounds gross (loaded) vehicle weight—are exempt from the luxury-auto dollar caps because they fall outside of the Code Sec. 280F(d)(5) definition of a passenger auto. For how to get big writeoffs for such vehicles under recent legislation, see article in Federal Taxes Weekly Alert 01/27/2011.

Lease income inclusion tables. A taxpayer that leases a business auto may deduct the part of the lease payment representing business/investment use. If business/investment use is 100%, the full lease cost is deductible. So that auto lessees can't avoid the effect of the luxury auto limits, however, they must include a certain amount in income during each year of the lease to partially offset the lease deduction. (Code Sec. 280F(c)) The income inclusion amount varies with the initial fair market value of the leased auto and the year of the lease, and is adjusted for inflation each year.

Tables 5 and 6 of Rev Proc 2011-21, carry the income inclusion tables for passenger autos, and light trucks and vans with a lease term beginning in 2011.

RIA observation: The income inclusion amounts for vehicles first leased this year are lower than they were for vehicles first leased last year. For example, for an auto with a fair market value over $37,000 but not over $38,000, and first leased in 2010, the income inclusion amounts were $44 for the first tax year during the lease, $96 for the second tax year, $143 for the third, $170 for the fourth, and $198 for the fifth and later lease years. If an auto in the same fair market value range is first leased in 2011, the income inclusion amounts are $22 for the first tax year during the lease, $49 for the second tax year, $73 for the third, $87 for the fourth, and $100 for the fifth and later lease years.

Some luxury auto figures revised for 2010. Rev Proc 2010-18, 2010-9 IRB 427, carrying the luxury auto dollar limits placed in service in 2010, was issued before the Small Business Jobs Act was enacted and thus did not reflect a boosted first-year dollar limit for 2010 qualifying vehicles. Rev Proc 2011-21 revises the 2010 luxury auto figures in Rev Proc 2010-18, by providing that if the bonus depreciation rules apply to an auto (not a truck or van), then the first-year dollar cap is increased from $3,060 to $11,060; for a light truck or van, the first-year dollar cap is increased from $3,160 to $11,160. All other luxury auto figures for vehicles placed in service in 2010 remain the same.

Rev Proc 2011-21, also revises the income inclusion amounts in Rev Proc 2010-18, for vehicles first leased in 2010. For such vehicles, the income inclusion rules don't apply unless the fair market value of an auto is $18,500 or more (had been $16,700 or more in Rev Proc 2010-18); it's $19,000 or more for trucks and vans (had been $17,000 or more in Rev Proc 2010-18).

RIA Research References: For business auto depreciation limits, see FTC 2d/FIN ¶ L-10001United States Tax Reporter ¶ 280F4TaxDesk ¶ 267,620. For income inclusion amounts for business auto lessees, see FTC 2d/FIN ¶ L-10200United States Tax Reporter ¶ 280F4TaxDesk ¶ 267,631.

Source:  Federal Tax Updates on Checkpoint Newsstand tab 3/2/2011  

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