This week the IRS released Rev. Proc. 2021-31, which includes the inflation-adjusted annual depreciation limitations and lease inclusion amounts for passenger automobiles placed in service in 2021. It’s important to remember that these depreciation caps and lease inclusion amounts do not apply to automobiles with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.
For owners of passenger automobiles, IRC §280F(a) places a limitation on the allowable depreciation deduction in the year the automobile is placed in service, as well as the subsequent years. IRC §280F(d)(7) requires the IRS to adjust the dollar limitations annually for inflation.
The updated annual depreciation limitations and lease inclusion amounts are listed below:
Table 1: Passenger Automobiles Acquired After September 27, 2017, and Placed in Service During Calendar Year 2021, for which § 168(k) “Bonus Depreciation” Applies
| Tax Year | Depreciation Amount Allowed |
|---|---|
| 1st Tax Year | $18,200 (increased from $18,100) |
| 2nd Tax Year | $16,400 (increased from $16,100) |
| 3rd Tax Year | $9,800 (increased from $9,700) |
| Each Succeeding Year | $5,860 (increased from $5,760) |
Table 2: Passenger Automobiles Acquired After September 27, 2017, and Placed in Service During Calendar Year 2021, for which § 168(k) “Bonus Depreciation” Does Not Apply
| Tax Year | Depreciation Amount Allowed |
|---|---|
| 1st Tax Year | $10,200 (increased from $10,100) |
| 2nd Tax Year | $16,400 (increased from $16,100) |
| 3rd Tax Year | $9,800 (increased from $9,700) |
| Each Succeeding Year | $5,860 (increased from $5,760) |
Lessees of passenger automobiles are also subject to deduction limitations under IRC §280F(c)(2). If an automobile is first leased in 2021, 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 lease is greater than $51,000. The lease inclusion table is below:
Table 3: Dollar Amounts for Passenger Automobiles with a Lease Term Beginning in Calendar Year 2021
|
Fair Market Value of Passenger Automobile |
Tax Year During Lease | |||||
|---|---|---|---|---|---|---|
| Over | Not Over | 1st | 2nd | 3rd | 4th | 5th and later |
| $51,000 | $52,000 | 0 | 0 | 1 | 0 | 1 |
| $52,000 | $53,000 | 1 | 1 | 1 | 2 | 2 |
| $53,000 | $54,000 | 1 | 2 | 2 | 3 | 4 |
| $54,000 | $55,000 | 1 | 3 | 3 | 5 | 5 |
| $55,000 | $56,000 | 2 | 3 | 5 | 6 | 6 |
| $56,000 | $57,000 | 2 | 4 | 6 | 7 | 8 |
| $57,000 | $58,000 | 2 | 5 | 7 | 8 | 10 |
| $58,000 | $59,000 | 3 | 5 | 8 | 10 | 11 |
| $59,000 | $60,000 | 3 | 6 | 9 | 11 | 13 |
| $60,000 | $62,000 | 3 | 7 | 11 | 13 | 15 |
| $62,000 | $64,000 | 4 | 9 | 13 | 15 | 18 |
| $64,000 | $66,000 | 5 | 10 | 15 | 18 | 21 |
| $66,000 | $68,000 | 5 | 12 | 17 | 21 | 24 |
| $68,000 | $70,000 | 6 | 13 | 20 | 23 | 27 |
| $70,000 | $72,000 | 7 | 14 | 22 | 26 | 30 |
| $72,000 | $74,000 | 7 | 16 | 24 | 29 | 33 |
| $74,000 | $76,000 | 8 | 18 | 26 | 31 | 36 |
| $76,000 | $78,000 | 9 | 19 | 28 | 34 | 39 |
| $78,000 | $80,000 | 9 | 21 | 30 | 37 | 42 |
| $80,000 | $85,000 | 11 | 23 | 34 | 41 | 48 |
| $85,000 | $90,000 | 12 | 27 | 40 | 47 | 55 |
| $90,000 | $95,000 | 14 | 30 | 45 | 55 | 62 |
| $95,000 | $100,000 | 16 | 34 | 50 | 61 | 70 |
| $100,000 | $110,000 | 18 | 40 | 58 | 71 | 81 |
| $110,000 | $120,000 | 21 | 47 | 70 | 83 | 97 |
| $120,000 | $130,000 | 25 | 54 | 81 | 96 | 112 |
| $130,000 | $140,000 | 28 | 62 | 91 | 110 | 127 |
| $140,000 | $150,000 | 31 | 69 | 103 | 123 | 141 |
| $150,000 | $160,000 | 35 | 76 | 114 | 136 | 157 |
| $160,000 | $170,000 | 38 | 84 | 124 | 149 | 172 |
| $170,000 | $180,000 | 41 | 91 | 135 | 163 | 187 |
| $180,000 | $190,000 | 45 | 98 | 146 | 176 | 202 |
| $190,000 | $200,000 | 48 | 106 | 157 | 188 | 218 |
| $200,000 | $210,000 | 51 | 113 | 168 | 202 | 232 |
| $210,000 | $220,000 | 55 | 120 | 179 | 215 | 247 |
| $220,000 | $230,000 | 58 | 128 | 190 | 227 | 263 |
| $230,000 | $240,000 | 61 | 135 | 201 | 241 | 278 |
| $240,000 | and over | 65 | 142 | 212 | 254 | 293 |
Please contact your Schneider Downs tax advisor if you need assistance or would like to discuss how these depreciation and deduction limitations could impact your business.
