The IRS has unveiled new depreciation deduction limitations for passenger automobiles (including trucks and vans) first placed in service during 2014, as well as the amount to be included in income by lessees of passenger automobiles that were first leased during calendar year 2014.

These limitations and income inclusion amounts, updated annually to reflect automobile price inflation adjustments required by § 280F(d)(7) of the IR Code, are in Revenue Procedure 2014-21.

The procedure provides:

  • Limitations on depreciation deductions for use by owners of passenger cars that the taxpayer first placed in service during calendar 2014, including separate tables of limitations on depreciation deductions for trucks and vans; and,
  • The amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar 2014, again with a separate table of inclusion amounts for lessees of trucks and vans.

The method of calculating price inflation amount for trucks and vans placed in service in or after 2003 uses a CPI “automobile component” (the “new trucks” component), resulting in somewhat higher depreciation deductions.
Under Section 1.280F-7(a), the reduction in the deduction allowed to the lessee of a passenger car requires a lessee to include in gross income an amount determined by applying a formula to the amount. The formula is obtained from a table for trucks and vans and another table for other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased.

Rev. Proc. 2014-21 will be in the Internal Revenue Bulletin 2014-11 on March 10.