The IRS has introduced the 2023 inflation-adjusted Code § 280F “luxurious vehicle” limits on sure deductions which may be taken by taxpayers utilizing passenger vehicles (together with vans and vehicles) in a commerce or enterprise. For bought vehicles, the boundaries cap the taxpayer’s depreciation deduction. For leased vehicles, the boundaries scale back the taxpayer’s lease expense deduction by an “inclusion quantity” that’s calculated to make the lease deduction considerably equal to the depreciation deduction that will have been obtainable if the car had been bought.

The depreciation limits and inclusion quantities for passenger vehicles {that a} taxpayer first locations in service or first leases throughout calendar yr 2023 are introduced in three tables. There are two depreciation-limit tables—one for vehicles acquired after September 27, 2017, that make the most of the extra first-year depreciation deduction beneath Code § 168(okay), and one other for vehicles for which no further first-year depreciation deduction might be taken. The third desk gives inclusion quantities for leased passenger vehicles with a good market worth exceeding $60,000. This threshold is a rise of $4,000 from the edge that utilized in 2022 (see our Checkpoint article).

EBIA Remark: The price of buying and sustaining an organization automobile for an worker might qualify as a deductible expense for the employer (which, in that case, is the taxpayer for functions of this income process). The Tax Cuts and Jobs Act considerably elevated the utmost depreciation deductions for passenger vehicles and prolonged the extra first-year depreciation restrict (typically known as “bonus depreciation”), however the Code’s deduction limits and earnings inclusion quantities can nonetheless considerably scale back an employer’s precise tax deductions. Whereas not talked about on this steering, employers offering firm vehicles should additionally contemplate the impact of Code § 274(l), which disallows any deduction for bills regarding journey between an worker’s residence and place of employment (see our Checkpoint article). For extra data, see EBIA’s Fringe Advantages handbook at Part IV.B (“What Are the Tax Penalties of a Firm Automobile?”).

Contributing Editors: EBIA Workers.