The IRS has released the dollar limits for the depreciation of business-use automobiles, trucks and vans purchased in calendar year 2007. These annually inflation-adjusted limits are only slightly higher than the 2006 amounts. The IRS also issued similar tables that limit the deduction for those who lease their business vehicles rather than buy them.

Comment.  Taking depreciation on a vehicle used for business forecloses a business from using the standard business mileage rate for vehicle expenses; actual expenses (depreciation, gas, maintenance, etc.) must then be computed.  The standard mileage rate builds in an average amount for depreciation.

The cost of a vehicle is generally depreciated over a five-year period.  The depreciation and lease limits are imposed so that the entire cost of an expensive luxury vehicle can be depreciated up front.

Dollar limits

Three separate deductions are covered by the 2007 dollar caps:

• Dollar limits on allowable regular depreciation that businesses may take for passenger vehicles first placed in service during calendar year 2007;
• Separate higher limits to reflect the higher costs of trucks and vans; and
• Similar limits on the amount of lease payments allowed to offset income for vehicles that are leased instead of purchased.

Passenger automobiles

The annual maximum depreciation amounts for passenger automobiles first placed in service in calendar year 2007 are as follows:

• $3,060 for the first tax year
• $4,900 for the second tax year
• $2,850 for the third tax year
• $1,775 for each tax year thereafter

Trucks and vans

The IRS allows a higher depreciation deduction for trucks and vans. The amounts are as follows:

• $3,260 for the first tax year
• $5,200 for the second tax year
• $3,050 for the third tax year
• $1,875 for each tax year thereafter

Inclusion amounts for lessees

Lease payments for vehicles used for business or investment purposes are deductible in proportion to the vehicle's business use. However, lessees must include a certain amount in income during the years the vehicle is leased to partially offset the amounts by which lease payments exceed the dollar limits.

If you have any question about the 2007 dollar limits, please give our office a call.

(Rev Proc 2007-30)