If you buy or lease a car, light truck, or van for your business, special tax rules may limit what you can write off. If you buy the vehicle, dollar limits cap depreciation write-offs. If you lease the vehicle, deductible lease payments must be reduced by an inclusion amount. The IRS has announced the numbers you need to know for 2019 (Rev. Proc. 2019-26).
Depreciation dollar limits. The 2019 dollar limits on depreciation of a vehicle are $18,100 for the first year ($10,100 if you do not use the vehicle over 50% for business or you opt out of bonus depreciation), $16,100 for the second year, $9,700 for the third year, and $5,760 for each succeeding year. These limits apply to light trucks and vans as well as to cars. However, for a vehicle acquired before September 28, 2017, and placed in service during 2019, the first-year dollar limit is capped at $14,900 (assuming bonus depreciation applies).
These dollar limits means that for many vehicles, the basic depreciation percentages (20% in the first year, 32% in the second year, 19.20% in the third year, 11.52% in fourth and fifth years, and 5.76% in the sixth year) likely will control write-offs because the depreciation allowance using these percentages is not greater than the dollar limits. For example, on January 1, 2019, you buy and place in service a vehicle costing $30,000. Your basic depreciation allowance is $6,000 (20% of $30,000). This is your depreciation allowance for 2019 because it is less than the $18,100 first-year dollar limit. A vehicle would need to cost more than $90,000 to trigger the first-year dollar limit.
Inclusion amounts. There is no inclusion amount if the value of the vehicle first leased in 2019 is $50,000 or less (the same threshold as in 2018).