Under the Tax Cuts and Jobs Act (TCJA), there is an additional first-year depreciation deduction that applies to qualified property, including passenger automobiles, acquired and placed in service after September 27, 2017, and before January 1, 2027.
Generally, both the section 179 and the depreciation deductions for passenger automobiles are subject to dollar limitations for the year in which the taxpayer places the passenger automobile in service and, for each succeeding year. For a passenger automobile qualifying for the 100-percent additional first-year depreciation deduction, TCJA increased the first-year limitation amount by $8,000.
If the depreciable basis of a passenger automobile for which the 100-percent additional first-year depreciation deduction is allowed exceeds the first-year limitation, the excess amount is deductible in the first taxable year after the end of the recovery period.
While this may be somewhat confusing for taxpayers, guidance is now available for a safe harbor method of accounting for passenger automobiles. Here is how the safe harbor works:
The safe harbor allows a depreciation deduction for the excess amount during the recovery period. It is, however, subject to the depreciation limitations applicable to passenger automobiles.
To apply the safe-harbor method, the taxpayer must use the applicable depreciation table found in Appendix A of IRS Publication 946, How To Depreciate Property. Taxpayers should note that the safe harbor method does not apply to a passenger automobile placed in service by the taxpayer after tax year 2022, or to a passenger automobile for which the taxpayer elected out of the 100-percent additional first year depreciation deduction or elected under section 179 to expense all or a portion of the cost of the passenger automobile.
Taxpayers can use the safe harbor method of accounting by applying it to the depreciation deduction of a passenger automobile on their return for the first taxable year following the placed-in-service year.