IRS Issues Increased Passenger Auto Depreciation Limitations

January 19, 2023

The IRS recently released Rev. Proc. 2023-14, issuing sharply higher new depreciation limitations for passenger automobiles for the second consecutive year.

The revenue procedure includes the Sec. 280F(a) inflation-adjusted dollar limitations on depreciation deductions for passenger automobiles, including trucks and vans, obtained after Sept. 27, 2017, and placed in service during 2023, for 2023 and each tax year thereafter.

For passenger automobiles for which the Sec. 168(k) 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. The succeeding-year limitations are $19,500 for the second tax year (up by $1,500 over 2022); $11,700 for the third year (up by $900); and $6,960 for each year after (up by $500).

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

Additionally, the procedure contains a table of the inflation-updated amounts for a lease term beginning in calendar year 2023 by which a deduction for a leased passenger automobile must be reduced under Sec. 280F(c)(2).

The depreciation limits are updated annually for inflation in accordance with the automobile component of the chained consumer price index for urban consumers.