The Internal Revenue Service (IRS) recently issued its luxury car depreciation limits for business vehicles placed in service in 2021 as well as its lease inclusion amounts for business vehicles with leases beginning in 2021. Doeren Mayhew’s business tax advisors share the new amounts so you can be informed in your next purchase or lease.

Luxury Passenger Car Depreciation Caps

The depreciation caps for a luxury passenger car placed in service in 2021 are:

• $10,200 for the first year without bonus depreciation
• $18,200 for the first year with bonus depreciation
• $16,400 for the second year
• $9,800 for the third year
• $5,860 for the fourth through the sixth year

SUV, Truck and Van Depreciation Caps

The depreciation caps for a luxury SUV, truck or van placed in service in 2021 are:

• $10,200 for the first year without bonus depreciation
• $18,200 for the first year with bonus depreciation
• $16,400 for the second year
• $9,800 for the third year
• $5,860 for the fourth through the sixth year

Excess Depreciation on Luxury Vehicles

If depreciation is greater than the annual cap, the excess depreciation will be deducted starting in the year following the end of the vehicle’s regular depreciation period. The annual cap for excess depreciation is $5,860 for passenger cars, SUVs, trucks and vans.

Lease Inclusion Amounts for Luxury Cars, SUVs, Trucks and Vans

If a vehicle’s lease began in 2021, the taxpayer is required to add a lease inclusion amount to their gross income each year of the lease if its fair market value at the time of the lease is greater than $51,000 for a passenger car, SUV, truck or van. A taxpayer’s lease inclusion amount results in a permanent reduction in their deduction for lease payments. For more information on the lease inclusion amounts for each year of a lease, please see the 2021 lease inclusion tables.

Exempt Vehicles

Certain vehicles are exempt from the depreciation caps and lease inclusion amounts, including:

• Cars with an unloaded gross vehicle weight of greater than 6,000 pounds
• SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of greater than 6,000 pounds

Taxpayers looking to avoid these limits should opt for a larger vehicle.

Here to Help

If you’re looking to purchase or lease a new business vehicle and have questions about the tax implications, contact Doeren Mayhew’s CPAs and advisors today.