Auto depreciation limits remain unchanged for 2020

The deprecation limits for passenger automobiles remain unchanged for 2020.

The IRS issued this month the annual depreciation dollar caps for vehicles purchased after September 27, 2017, and first placed in service in 2020. Those limits for taxpayers eligible for bonus first-year depreciation deduction for qualified property under Section 168(k) are:

  • $18,100 for the placed-in-service year;
  • $16,100 for the second tax year;
  • $9,700 for the third tax year; and
  • $5,760 for each succeeding year.

The limits for passenger automobiles placed in service during the 2020 calendar year for which the taxpayer is not eligible for the bonus first-year depreciation are:

  • $10,100 for the placed-in-service year;
  • $16,100 for the second tax year;
  • $9,700 for the third tax year; and
  • $5,760 for each succeeding year.

Vehicles greater than 6,000 pounds are not subject to the passenger automobile limits and are eligible for a 100% bonus first-year depreciation deduction.

Those who lease an automobile for business purposes may deduct the part of the lease payment representing the business use. If the vehicle is used 100% of the time for business use, the full cost of the lease is deductible. However, lessees must include a certain amount in income for each year of the lease to partially offset the lease deduction. The income inclusion amount is adjusted for inflation each year and varies with the initial fair market value of the leased auto and the year of the lease.

Should you buy or lease?

If you are considering acquiring a new vehicle this year, think about the advantages and disadvantages of purchasing versus leasing. In a nutshell, leasing a vehicle is best for those who do not plan to keep it for a long period of time, want to minimize up-front costs, and who can stay within the mileage allowance.

Purchasing is preferable for those who see a vehicle as a long-term commitment, want to be debt-free at the end of the loan and who do not want to be restricted in the number of miles they can drive.

Whichever option you choose, please contact us so we can advise you about your business deduction.

Tammy Howell is a BTAG Manager with Antares Group, Inc. She can be reached at tch@antarescpas.com.