2014 Vehicle Deduction Limitations

The internal revenue code (IRC) imposes dollar limitations on the depreciation deduction for the year the taxpayer places a passenger automobile in
service for business purposes, and for each succeeding year the vehicle remains in service. For passenger automobiles placed in service after 1988, the IRC requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount and thus the dollar amount of depreciation deductions for such vehicles vary by year.

For those who lease passenger automobiles used in business, the IRC also requires a reduction in the deduction allowed to the lessee.  The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles and thus this amount varies by year also.  This reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased.

The resulting deductions for vehicles placed in service in 2014 is disclosed in Revenue Procedure 2014-21 which provides the depreciation deduction limitations for owners of passenger automobiles (including trucks and vans) first placed in service during calendar year 2014 and the amount to be included in income by lessees of passenger automobiles first leased during calendar year 2014.

Pursuant to the IRC, these depreciation deduction limitations and income inclusion amounts are updated annually to reflect the automobile price inflation adjustments, so these deductions and inclusion amounts apply only to vehicles placed in service during 2014.  Please refer to Revenue Procedure 2014-21  for details. 

For those who lease passenger automobiles used in business, the IRC also requires a reduction in the deduction allowed to the lessee. This reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased.

DISCLAIMER: This information is general in nature and limited to only limitations on such deductions without disclosing the specific calculation methods available.  In addition, the specifics of each taxpayer’s circumstances are different and application of these or any procedures to specific taxpayer circumstances may require interpretation.  We are therefore not responsible for the application of this general information to the specific circumstances of a reader unless we have been engaged as the reader’s tax preparer or consultant.

Do you need a professional tax consultant for your business? Our firm and its predecessor firms have provided tax preparation and consulting services to businesses in western Pennsylvania since 1942.  We specialize in small businesses and nonprofit organizations and provide services at all levels from bookkeeping and payroll to audits under GAAP or GAGAS guidelines to preparation of reviewed and compiled financial statements according to SSARS to annual income tax preparation.

Please feel free to refer to the CONTACTS information listed on this blog to speak to a firm representative of Roy & Associates, PC.  We welcome new business.

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Roy & Associates, PC serves clients in western Pennsylvania located predominantly in Westmoreland County, Allegheny County, and Fayette County.

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