Bauman CPA - Tax Alerts - March 2010 - IRS issues 2010 vehicle depreciation dollar limits

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New IRS rules require us to give you the following notice: This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.

The information contained in this website is intended to provide general information on matters of interest in the areas of tax and accounting. You are encouraged to contact us regarding your specific situation.

IRS issues 2010 vehicle depreciation dollar limits

The IRS has issued the depreciation deduction limitations and lease inclusion amounts for automobiles, trucks and vans first purchased and used in 2010. The basic 2010 depreciation limits for passenger automobiles, trucks and vans are higher than the respective depreciation limits for 2009.

Passenger automobiles

The maximum depreciation limits for passenger automobiles first placed in service during the 2010 calendar year are:

$3,060 for the first tax year;
$4,900 for the second tax year;
$2,950 for the third tax year; and
$1,775 for each tax year thereafter.

The reason the first year depreciation limit is lower than the second year limit is that a "half-year" depreciation convention must be applied no matter when in that first year you purchase your business vehicle.

Based on this schedule for 2010 purchases, you won't be able to fully depreciate a $25,000 vehicle until 2021. The purpose of these rules, of course, is not to have you hold a vehicle for that long but to put a cap on what is considered basic transportation and what portion is a "luxury" for which the tax law will not pick up the tab.

Trucks and vans

The maximum depreciation limits for trucks and vans first placed in service during the 2010 calendar year are:

$3,160 for the first tax year;
$5,100 for the second tax year;
$3,050 for the third tax year; and
$1,875 for each tax year thereafter.

Leases

Lease payments for vehicles used for business or investment purposes are deductible in proportion to the vehicle's business use. However, lessees must include a certain amount in income during the year the vehicle is leased to partially offset the amounts by which the lease payments exceed the luxury auto limits. The IRS has released tables that identify the income inclusion amounts for passenger automobiles, trucks and vans with lease terms beginning in 2010. These amounts can be found on the IRS's website, www.irs.gov, and in Revenue Procedure 2010-18.

Standard mileage rate

In January, the IRS also The IRS has released the maximum fair market values (FMVs) for business automobiles, trucks and vans first placed into service in 2010 and for which the vehicle cents-per-mile rule and the fleet-average valuation rule may apply.

Cents-per-mile valuation

The maximum FMVs for use of the vehicle cents-per-mile valuation rule in 2010, are:

$15,300 for a passenger automobile; and
$16,000 for a truck or van, which includes automobiles built on a truck chassis, such as minivans and sport-utility vehicles (SUVs) built on a truck chassis.

Fleet-average valuation

The maximum FMVs for use of the fleet-average valuation rule in 2010 are:

$20,300 for a passenger automobile; and
$21,000 for a truck or van.

Please call us at your earliest opportunity if you have questions about the 2010 vehicle depreciation dollar limits or other business vehicle expenses.