The Treasury Department and the IRS have issued guidance that provides a safe harbor for calculating depreciation deductions from passenger vehicles that qualify for the 100% additional first year depreciation deduction.
Under the Tax Cuts and Jobs Act (TCJA), additional first year depreciation deduction applies
to qualified property including passenger vehicles acquired and placed into service after September 27, 2017 and before January 1, 2027.
Section 179 and depreciation deductions are generally subject to dollar limitations for the year the taxpayer places the passenger vehicle into service and each succeeding year. For passenger vehicles that qualify for the 100% additional first year depreciation deduction, the TCJA increased the first year limitation by $8,000.
In the new guidance, the safe harbor method of accounting for passenger cars allows depreciation deductions during the asset’s recovery period for the purchase price in excess of the first year’s depreciation, subject to the applicable depreciation limits. The taxpayers would use the applicable depreciation table found Appendix A of IRS Publication 946 to calculate the appropriate deduction.
This method will not apply to passenger vehicles placed into service after 2022 or to a passenger car for which they elected out of the 100% additional first year depreciation deduction or if they elected to expense all, or a portion of the cost of the auto, under Section 179.
Taxpayers adopt this safe harbor when they take the deduction for depreciation of the passenger vehicle on their tax return for the first tax year succeeding the placed in service year. If you have any questions about additional first year depreciation or any other provision of the TCJA, contact your Zinner tax expert.
