AgDM newsletter article, January 2004

Depreciation on listed property vehicles*

Neil Harl By Neil Harl, Charles F. Curtiss Distinguished Professor of Agriculture, professor of economics, 515-294-6354,

The enactment of depreciation rules for “listed property” in 1984 marked a new era in recovering investment in business assets. For property with both business and personal use, the income tax basis for depreciation purposes is determined, as always, by applying the fraction of business use to total use. But listed property assets are further limited in terms of the amount of depreciation claimable.

The enactment of bonus depreciation rules has focused additional attention on passenger automobiles, one of the important components of listed property.

Depreciation tablePassenger automobiles

While all vehicles used for transportation purposes are considered “listed property,” automobiles and pickups of 6,000 pounds unloaded gross vehicle weight or less (GVW for trucks and vans) are subjected to dollar limits on depreciation claimable. Property must be used “predominantly” in a qualified business use in order to be eligible for the regular amount of depreciation deduction. Predominantly means more than 50 percent in a qualified business use. The proportion of a vehicle’s basis that can be depreciated depends upon substantiation of business use. If the qualified business use is 50 percent or less, expense method depreciation may not be claimed, the 30 percent and 50 percent bonus depreciation allowances cannot be claimed, and depreciation deductions must be calculated using the alternative depreciation method.

In 2002, Congress passed legislation providing for a 30 percent extra depreciation allowance on new vehicles which provided specifically for an increase of $4,600 in the first year depreciation allowance for passenger automobiles. In 2003, the Congress boosted the extra depreciation allowance to 50 percent for property acquired after May 5, 2003, and placed in service before January 1, 2005, if there was no binding contract in effect before May 6, 2003. The 2003 legislation increased the first year depreciation allowance for new passenger automobiles by $7650 to $10,710.

Trucks and vans as non-personal use vehicles

Temporary regulations effective July 3, 2003, exclude from the definition of passenger automobiles any truck or van that is a “qualified nonpersonal use vehicle” as defined under I.R.C. § 274 which applies to vehicles not likely to be used more than a de minimis amount for personal purposes. These vehicles are subject to the limits for listed property but not the dollar limits for passenger automobiles.

Other trucks and vans

For other trucks and vans, placed in service in 2003, a higher inflation adjustment factor has been approved.

Electric automobiles

A 1998 amendment specifies that the maximum depreciation amounts that may be claimed for electric vehicles are tripled through 2004.

A deduction of $2,000 is available for electric vehicles certified under the clean fuel provision of federal law.

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