The Treasury Department and the IRS have issued guidance that provides a safe harbor method for determining depreciation deductions for passenger automobiles that qualify for the 100-percent additional first-year depreciation deduction. Affected vehicles must also be subject to the depreciation limitations for passenger automobiles.

Under the Tax Cuts and Jobs Act, the additional first-year depreciation deduction applies to qualified property, including passenger automobiles, acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027. Generally, the Sec. 179 and depreciation deductions for passenger automobiles are subject to dollar limitations for the year the taxpayer places the passenger automobile in service and for each succeeding year. For a passenger automobile that qualifies for the 100-percent additional first-year depreciation deduction, the TCJA increased the first-year limitation $8,000.

The guidance provides a safe harbor method of accounting for passenger automobiles, allowing for depreciation deductions for the excess amount during the recovery period subject to the applicable depreciation limitations. To apply the safe-harbor method, the taxpayer must use the applicable depreciation table in Appendix A of IRS Publication 946.

The method does not apply to a passenger automobile placed in service by the taxpayer after 2022 or to a passenger automobile for which the taxpayer elected out of the 100-percent additional first-year depreciation deduction or elected under Sec. 179 to expense all or a portion of the cost of the automobile.

Taxpayers adopt the safe harbor method of accounting by applying it to deduct depreciation of a passenger automobile on their tax return for the first taxable year following the placed-in-service year.