The Internal Revenue Service has released the limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2011.

Revenue Procedure 2011-21 provides the depreciation deduction limitations and the amount to be included in income by lessees of passenger automobiles first leased during calendar year 2011. The depreciation deduction limitations and income inclusion amounts are updated annually pursuant to Section 280F of the Tax Code to reflect the automobile price inflation adjustments.

Rev. Proc. 2011-21 also modifies Rev. Proc. 2010-18, to increase the depreciation limitations and lessee inclusion amounts for passenger automobiles first placed in service or leased in 2010 by taxpayers claiming the Section 168(k) additional first-year depreciation deduction under the Small Business Jobs Act of 2010.

For owners of passenger automobiles, the Tax Code imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year.  For passenger automobiles placed in service after 1988, the Tax Code requires the IRS to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different consumer price index “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans.  This change reflects the higher rate of price inflation for trucks and vans since 1988.

The Small Business Jobs Act of 2010 extended the 50 percent additional first year depreciation deduction) to qualified property acquired by the taxpayer after Dec. 31, 2007, and before Jan. 1, 2011, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before Jan. 1, 2011. Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, further extended the 50 percent additional first year depreciation deduction to qualified property acquired by the taxpayer after Dec. 31, 2007, and before Jan. 1, 2013, if no written binding contract for the acquisition of the property existed before Jan. 1, 2008, and if the taxpayer places the property in service generally before Jan. 1, 2013.

Section 401(b) of the Act allows a 100 percent additional first year depreciation deduction for qualified property acquired by a taxpayer after Sept. 8, 2010, and before Jan. 1, 2012, if the taxpayer places the property in service generally before Jan. 1, 2012. Section 168(k)(2)(F)(i) increases the first-year depreciation allowed by $8,000 for passenger automobiles to which the additional first-year depreciation deduction under Section 168(k) applies.

The tables for figuring the depreciation deduction limitations can be found here.

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