2023 Luxury Automobile Depreciation Caps and Lease Inclusion Amounts

The IRS released luxury car depreciation limits for business vehicles placed in service in 2023 as well as its lease inclusion amounts for business vehicles with leases beginning in 2023.

Luxury Passenger Car Depreciation Caps

The depreciation caps for a luxury passenger car placed in service in 2023 are:

• $12,200 for the first year without bonus depreciation
• $20,200 for the first year with bonus depreciation
• $19,500 for the second year
• $11,700 for the third year
• $6,960 for the fourth through sixth year

SUV, Truck, and Van Depreciation Caps

The depreciation caps for a luxury SUV, truck, or van placed in service in 2023 are:

• $12,200 for the first year without bonus depreciation
• $20,200 for the first year with bonus depreciation
• $19,500 for the second year
• $11,700 for the third year
• $6,960 for the fourth through 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 $6,960 for passenger cars, SUVs, trucks, and vans.

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

If a vehicle’s lease began in 2023, 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 $60,000 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 2023 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.

Questions

Contact us if you have questions about vehicle depreciation for your business.