For U.S. federal tax purposes, a business can generally depreciate any property, plant & equipment (PPE) used in the trade or business.

There are unique depreciation rules that apply to assets that are “listed property” which generally include the following assets:

  • Passenger automobiles.
  • Any other property used for transportation, unless it is an excepted vehicle.
  • Property used for entertainment, recreation, or amusement.

Listed property are subject to strict depreciation rules and certain limitations that don’t apply to other depreciable property.

Depreciation Limits on Passenger Automobiles

A passenger automobile is generally a 4-wheeled vehicle used on public streets and has a gross vehicle weight of 6,000 pounds or less. For a business to depreciate the property using the General Depreciation System (GDS) under MACRS, the business usage of the vehicle must be more than 50%. The business usage must also be more than 50% to claim the Section 179 deduction or the bonus depreciation allowance.

If the business use of the automobile is 50% or less, the company can still depreciate the property, but it must use the straight-line depreciation method under the Alternative Depreciation System (ADS).

Bonus Depreciation Limits for Passenger Automobiles

If the passenger automobile is used at least 50% for business use, the company is eligible for Section 179 or Bonus Depreciation. The depreciation deduction, however, is capped depending on the year the property was placed into service.

The depreciation caps for passenger automobiles were $18,200 for 2021, $19,200 for 2022, and $20,200 for the 2023 tax year.

Example Depreciation Limits for Passenger Automobiles

In 2022, Company A, a Delaware corporation, buys a 2022 Ford Escort for $30,000 and uses it 100% for business use. The vehicle is a passenger automobile that weighs less than 6,000 pounds, so it is listed property subject to additional depreciation rules. For the 2022 tax year, a company can claim 100% bonus depreciation on eligible property.

The company prepares Form 4562 (Depreciation and Amortization) and claims bonus depreciation of $19,200. The company cannot claim the entire 100% bonus depreciation of $30,000 because this vehicle is listed property.

Example Depreciation for Non Passenger Automobiles

In 2022, Company B, a Wyoming limited liability company (LLC), buys a 2022 Ford Expedition for $60,000 and uses it 100% for business purposes. The vehicle is NOT a passenger automobile for the listed property rules because it has a gross vehicle weight of 7,500 pounds. For the 2022 tax year, a company can claim 100% bonus depreciation on eligible property.

The company prepares Form 4562 and claims bonus depreciation for the entire $60,000. The company is eligible for a 100% bonus depreciation deduction because the vehicle is not listed property and was used 100% for business purposes.

Video Tutorials on Depreciation for Automobiles

Please visit our channel for various video tutorials on depreciation expense and bonus depreciation for listed property.

Additional Information

Taxpayers can find more information on the depreciation rules for listed property by reading the IRS Form 4562 Instructions and reviewing IRS Publication 946 (How to Depreciate Property).