IRS Announces 2021 Automobile Depreciation Limitations

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. 

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