Auto depreciation limitations increased for 2023

The IRS has issued new depreciation with higher limitations for passenger automobiles.

The new limitations released Wednesday contain the Internal Revenue Section (IRC) 280F(a) inflation-adjusted dollar limitations on depreciation deductions for passenger automobiles, including trucks and vans placed into service during 2023 and each succeeding tax
year.

For passenger automobiles for which IRC 168(k) additional first-year, or "bonus," depreciation is applied, the limitation is $20,200 for the first tax year, an increase of $1,000 from the 2022 amount, which also was an increase of $1,000 from 2021 amount.

The succeeding-year limitations are $19,500 for the second tax year (an increase of $1,500 over 2022), $11,700 for the third year ($900
higher), and $6,960 for each year after that (an increase of $500).

If bonus depreciation does not apply, the 2023 first-year limitation is $12,200 ($1,000 higher than 2022), and the succeeding years' limitations are the same as for vehicles eligible for the bonus depreciation.

The revenue procedure also provides a table of the inflation-updated amounts for a lease term beginning in calendar 2022 by which a deduction for a leased passenger automobile must be reduced under IRC
280F(c)(2).

This limitation is expressed as an inclusion in gross income, which is determined by applying a formula to a dollar amount.

The dollar amounts, for each tax year during a lease are correlated to ranges of vehicles' fair market value.

For the 12 months ending December 2022, the price of used cars and trucks dropped by 8.8% while the prices of new cars increased by 5.9%,
according to the Bureau of Labor Statistics.