2020 Luxury Auto Depreciation Caps and Lease Inclusion Amounts Issued

09 July 2020

The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2020 and the lease inclusion amounts for business vehicles first leased in 2020.

Luxury Passenger Car Depreciation Caps

The luxury car depreciation caps for a passenger car placed in service in 2020 limit annual depreciation deductions to:

  • $10,100 for the first year without bonus depreciation
  • $18,100 for the first year with bonus depreciation
  • $16,100 for the second year
  • $9,700 for the third year
  • $5,760 for the fourth through sixth year

Depreciation Caps for SUVs, Trucks and Vans

The luxury car depreciation caps for a sport utility vehicle, truck, or van placed in service in 2020 are:

  • $10,100 for the first year without bonus depreciation
  • $18,100 for the first year with bonus depreciation
  • $16,100 for the second year
  • $9,700 for the third year
  • $5,760 for the fourth through sixth year

Excess Depreciation on Luxury Vehicles

If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.

The annual cap for this excess depreciation is:

  • $5,760 for passenger cars and
  • $5,760 for SUVS, trucks, and vans.

Lease Inclusion Amounts for Cars, SUVs, Trucks and Vans

If a vehicle is first leased in 2020, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:

  • $50,000 for a passenger car, or
  • $50,000 for an SUV, truck or van.

The 2020 lease inclusion tables provide the lease inclusion amounts for each year of the lease.

The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.

Vehicles Exempt from Depreciation Caps and Lease Inclusion Amounts

The depreciation caps and lease inclusion amounts do not apply to:

  • cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
  • SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.

So taxpayers who want to avoid these limits should “think big.”