For this year’s 2018 Depreciation Limits, business use vehicles offer opportunities and challenges. Claiming depreciation as a business expense for personally available vehicles is a clear advantage. As is common, a “but” is included due to special rules known as “Listed Property” attributes. These rules recognize there are both personal and business attributes associated with the same asset; the vehicle has a value to the individual and their business using the vehicle which has necessitated specific 2018 Car and Truck Depreciation Limits.

The conceptual challenge is that there are differences between a business van say, for a “Construction Person”, and the “Executive” with a new Mercedes, known as Listed Property.

As a result, Congress has limited the amount of depreciation allowable as a deduction in instances that unfairly allows wealthy individuals to purchase expensive property (vehicles), therefore unjustly taking advantage of available tax incentives available to the wealthy few while unavailable to the rest of our taxpayers.

Leveling The Playing Field; With Bonus Depreciation Incentives

The 2018 guidance for car and truck depreciation limits includes figures for vehicles that are placed in service this year and to which first-year bonus depreciation applies.

If you purchase Listed Property and use it more than 50% for business, certain rules apply and additional deductions may be available. For passenger automobiles, including trucks or vans under 6,000 GVW, placed in service during the calendar year 2018, the depreciation limit adjustment under Sec. 280F(d)(7) is $18,000 for the first tax year, including bonus depreciation or $10,000 if bonus depreciation does not apply. This is the value of qualifying for “Bonus Depreciation”.

Considering subsequent years, passenger vehicle limits are $16,000 for the second tax year, $9,600 for the third tax year, and $5,760 for each successive tax year.

Because of the complex rules associated with listed property and personal use limitations, Leasing vehicles for your business needs is often an attractive financing alternative allowing the business percentage of your lease payments to be deducted as you use the vehicle and protecting your Cash Flow in the meantime.

The IRS issued the 2018 inflation adjustments to the depreciation limitations and lease inclusion amounts for certain automobiles under Sec. 280F. This section limits deductions for the cost of leasing vehicles, expressed as an Income Inclusion amount according to a formula and tables prescribed under Sec. 1.280F-7. This section provides an updated table of the amounts to be included in income by lessees of passenger vehicles with lease terms that begin in the calendar year 2018.

What’s It All Worth?

Although we’ve outlined the standard deductions for these special circumstances, there’s no cookie-cutter formula for calculating depreciation values. Talk to us to find out if you qualify for Bonus Depreciation or if leasing a vehicle would prove to be more beneficial to your current business needs. We can help you navigate the most up-to-date IRS information and opportunities to exercise control and enrich your, and your company’s, performance.

Have a question? Contact Daniel Morris.

Your comments are always welcome!