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IRS Announces Limits on Depreciation Deductions for Automobiles

JAN. 18, 2023

Rev. Proc. 2023-14; 2023-6 IRB 466

DATED JAN. 18, 2023
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Citations: Rev. Proc. 2023-14; 2023-6 IRB 466

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.

(Also Part I, §§ 280F; 1.280F-7.)

SECTION 1. PURPOSE

This revenue procedure provides: (1) two tables of limitations on depreciation deductions for owners of passenger automobiles placed in service by the taxpayer during calendar year 2023; and (2) a table of dollar amounts that must be used to determine income inclusions by lessees of passenger automobiles with a lease term beginning in calendar year 2023. These tables reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. For purposes of this revenue procedure, the term “passenger automobiles” includes trucks and vans.

SECTION 2. BACKGROUND

.01 For owners of passenger automobiles, § 280F(a) 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 2018, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount that is determined using the automobile component of the Chained Consumer Price Index for all Urban Consumers published by the Department of Labor (C-CPI-U).

.02 Section 168(k)(1) provides that, in the case of qualified property, the depreciation deduction allowed under § 167(a) for the taxable year in which the property is placed in service includes an allowance equal to the applicable percentage of the property's adjusted basis, referred to as “§ 168(k) additional first year depreciation deduction” hereinafter. Pursuant to § 168(k)(6)(A), the applicable percentage is 100 percent for qualified property acquired and placed in service after September 27, 2017, and placed in service before January 1, 2023, and is phased down 20 percent each year for property placed in service through December 31, 2026. Accordingly, the applicable percentage for qualified property acquired after September 27, 2017, and placed in service after December 31, 2022, and before January 1, 2024, is 80 percent. Pursuant to § 168(k)(8)(D)(i), no § 168(k) additional first year depreciation deduction is allowed or allowable for qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after 2019. For qualified property acquired and placed in service after September 27, 2017, § 168(k)(2)(F)(i) increases the first-year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000.

.03 Tables 1 and 2 of this revenue procedure provide depreciation limitations for passenger automobiles placed in service by the taxpayer during calendar year 2023. Table 1 provides depreciation limitations for passenger automobiles acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2023, for which the § 168(k) additional first year depreciation deduction applies. Table 2 provides depreciation limitations for passenger automobiles placed in service by the taxpayer during calendar year 2023 for which no § 168(k) additional first year depreciation deduction applies. The § 168(k) additional first year depreciation deduction does not apply for 2023 if the taxpayer: (1) did not use the passenger automobile during 2023 more than 50 percent for business purposes; (2) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(7) for the class of property that includes passenger automobiles; (3) acquired the passenger automobile used and the acquisition of such property did not meet the acquisition requirements in § 168(k)(2)(E)(ii) and § 1.168(k)-2(b)(3)(iii) of the Income Tax Regulations; or (4) acquired the passenger automobile before September 28, 2017, and placed it in service after 2019.

.04 Section 280F(c)(2) requires a reduction to the amount allowable as a deduction to the lessee of a leased passenger automobile. Pursuant to § 280F(c)(3), the reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under § 1.280F-7(a), this reduction is accomplished by requiring the lessee to include in gross income an amount determined by applying a formula to a dollar amount obtained from a table.

.05 Table 3 of this revenue procedure provides the dollar amount used by lessees of passenger automobiles with a lease term beginning in 2023 to determine the income inclusion amount for those passenger automobiles. The table provides dollar amounts for a range of fair market values.

SECTION 3. SCOPE

.01 The limitations on depreciation deductions in Tables 1 and 2 in section 4.01(2) of this revenue procedure apply to passenger automobiles, other than leased passenger automobiles, that are placed in service by the taxpayer in calendar year 2023, and continue to apply for each taxable year that the passenger automobile remains in service.

.02 The dollar amount in Table 3 of this revenue procedure applies to leased passenger automobiles with a lease term beginning in calendar year 2023, and continues to apply for each taxable year during the lease.

.03 See Rev. Proc. 2018-25, 2018-18 I.R.B. 543, for passenger automobiles placed in service or leased during calendar year 2018; Rev. Proc. 2019-26, 2019-24 I.R.B. 1323, for passenger automobiles placed in service or leased during calendar year 2019; Rev. Proc. 2020-37, 2020-33 I.R.B. 381, for passenger automobiles placed in service or leased during calendar year 2020; Rev. Proc. 2021-31, 2021-34 I.R.B. 324, for passenger automobiles placed in service or leased during calendar year 2021; and Rev. Proc. 2022-17, 2022-13 I.R.B. 930, for passenger automobiles placed in service or leased during calendar year 2022.

SECTION 4. APPLICATION

.01 Limitations on Depreciation Deductions for Certain Automobiles .

(1) Amount of the inflation adjustment . Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the C-CPI-U automobile component for October of the preceding calendar year exceeds the automobile component of the CPI (as defined in § 1(f)(4)) for October of 2017, multiplied by the amount determined under § 1(f)(3)(B). The amount determined under §1(f)(3)(B) is the amount obtained by dividing the new vehicle component of the C-CPI-U for calendar year 2016 by the new vehicle component of the CPI for calendar year 2016, where the C-CPI-U and the CPI for calendar year 2016 means the average of such amounts as of the close of the 12-month period ending on August 31, 2016. Section 280F(d)(7)(B)(ii) defines the term "C-CPI-U automobile component" as the automobile component of the Chained Consumer Price Index for All Urban Consumers as described in § 1(f)(6). The product of the October 2017 CPI new vehicle component (144.868) and the amount determined under § 1(f)(3)(B) (0.694370319) is 100.592. The new vehicle component of the C-CPI-U released in November 2022 was 122.399 for October 2022. The October 2022 C-CPI-U new vehicle component exceeded the product of the October 2017 CPI new vehicle component and the amount determined under § 1(f)(3)(B) by 21.807 (122.399-100.592). The percentage by which the C-CPI-U new vehicle component for October 2022 exceeds the product of the new vehicle component of the CPI for October of 2017 and the amount determined under § 1(f)(3)(B) is 21.679 percent (21.807/100.592 x 100%), the automobile price inflation adjustment for 2023 for passenger automobiles. The dollar limitations in § 280F(a) are therefore multiplied by a factor of 0.21679, and the resulting increases, after rounding to the nearest $100, are added to the 2018 limitations to give the depreciation limitations applicable to passenger automobiles for calendar year 2023. This adjustment applies to all passenger automobiles that are placed in service in calendar year 2023.

(2) Amount of the limitation . Tables 1 and 2 of this revenue procedure contain the depreciation limitation for each taxable year for passenger automobiles a taxpayer placed in service during calendar year 2023. Use Table 1 for a passenger automobile to which the § 168(k) additional first year depreciation deduction applies that is acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2023; use Table 2 for a passenger automobile for which no § 168(k) additional first year depreciation deduction applies.

REV. PROC. 2023-14 TABLE 1
DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES ACQUIRED AFTER SEPTEMBER 27, 2017, AND PLACED IN SERVICE DURING CALENDAR YEAR 2023, FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$20,200

2nd Tax Year

$19,500

3rd Tax Year

$11,700

Each Succeeding Year

$6,960

REV. PROC. 2023-14 TABLE 2
DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES PLACED IN SERVICE DURING CALENDAR YEAR 2023 FOR WHICH NO § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$12,200

2nd Tax Year

$19,500

3rd Tax Year

$11,700

Each Succeeding Year

$6,960

.02 Inclusions in Income of Lessees of Passenger Automobiles .

A taxpayer must follow the procedures in § 1.280F-7(a) for determining the inclusion amounts for passenger automobiles with a lease term beginning in calendar year 2023. In applying these procedures, lessees of passenger automobiles should use Table 3 of this revenue procedure.

REV. PROC. 2023-14 TABLE 3
DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2023

Fair Market Value of Passenger Automobile Over

Fair Market Value of Passenger Automobile Not Over

1st Tax Year During Lease

2nd Tax Year During Lease

3rd Tax Year During Lease

4th Tax Year During Lease

5th Tax Year During Lease & later

$60,000

$62,000

0

0

1

3

5

62,000

64,000

13

29

43

54

63

64,000

66,000

26

57

86

104

122

66,000

68,000

39

86

128

154

181

68,000

70,000

52

114

170

206

239

70,000

72,000

65

143

212

256

297

72,000

74,000

78

171

255

306

356

74,000

76,000

91

200

296

358

414

76,000

78,000

104

228

339

408

473

78,000

80,000

117

257

381

459

531

80,000

85,000

140

306

455

548

634

85,000

90,000

172

378

560

674

780

90,000

95,000

204

449

666

801

926

95,000

100,000

237

520

772

927

1,073

100,000

110,000

286

627

930

1,117

1,292

110,000

120,000

350

769

1,142

1,371

1,584

120,000

130,000

415

912

1,353

1,623

1,877

130,000

140,000

480

1,054

1,564

1,877

2,169

140,000

150,000

545

1,196

1,776

2,130

2,462

150,000

160,000

610

1,339

1,986

2,384

2,754

160,000

170,000

675

1,481

2,198

2,637

3,046

170,000

180,000

740

1,623

2,409

2,891

3,338

180,000

190,000

805

1,766

2,620

3,143

3,632

190,000

200,000

870

1,908

2,831

3,397

3,924

200,000

210,000

935

2,050

3,043

3,650

4,216

210,000

220,000

999

2,193

3,254

3,903

4,509

220,000

230,000

1,064

2,335

3,465

4,157

4,801

230,000

240,000

1,129

2,478

3,676

4,410

5,094

240,000

and over

1,194

2,620

3,887

4,664

5,386

SECTION 5. EFFECTIVE DATE

This revenue procedure applies to passenger automobiles placed in service during calendar year 2023 or with a lease term beginning in calendar year 2023.

SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Bernard P. Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting) . For further information regarding this revenue procedure, contact Mr. Harvey at (202) 317-4640 (not a toll-free number).

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