26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability (Also: Part I, §§ 168, 280F; § 1.168(k)-1)

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;

determination of correct tax liability

(Also: Part I, §§ 168, 280F; § 1.168(k)-1)

Rev. Proc. 2019-13

SECTION 1. PURPOSE

This revenue procedure provides a safe harbor method of accounting for

determining depreciation deductions for passenger automobiles that qualify for the 100-

percent additional first year depreciation deduction under § 168(k) of the Internal

Revenue Code, as amended by § 13201 of the Tax Cuts and Jobs Act, Public Law 115-

97, 131 Stat. 2054 (December 22, 2017) (the “Act”), and that are subject to the

depreciation limitations under § 280F(a), as amended by § 13202(a)(1) of the Act.

SECTION 2. BACKGROUND

.01 Section 13201 of the Act amended § 168(k) to extend and modify the

additional first year depreciation deduction for qualified property acquired and placed in

service by the taxpayer after September 27, 2017, and generally placed in service by

the taxpayer before January 1, 2027. Section 168(k)(1) provides that, in the case of

qualified property, the depreciation deduction allowed under § 167(a) for the taxable

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year in which the property is placed in service includes an allowance equal to the

applicable percentage of the property's adjusted basis. Pursuant to § 168(k)(6)(A), the

applicable percentage is 100-percent for qualified property acquired and placed in

service after September 27, 2017, and placed in service before January 1, 2023

(hereinafter, referred to as “100-percent additional first year depreciation deduction”).

The applicable percentage is phased down by 20 percentage points each year for

qualified property placed in service after December 31, 2022, through December 31,

2026.

.02 Section 168(k)(7) provides that a taxpayer may elect out of the additional first

year depreciation deduction with respect to any class of property that is qualified

property placed in service during the taxable year

”).

The applicable percentage is phased down by 20 percentage points each year for

qualified property placed in service after December 31, 2022, through December 31,

2026.

.02 Section 168(k)(7) provides that a taxpayer may elect out of the additional first

year depreciation deduction with respect to any class of property that is qualified

property placed in service during the taxable year.

.03 Section 168(k)(10) allows a taxpayer to elect to deduct 50-percent, instead of

100-percent, additional first year depreciation for all qualified property acquired after

September 27, 2017, by the taxpayer and placed in service by the taxpayer during its

first taxable year that includes September 28, 2017.

.04 For owners of passenger automobiles, § 280F(a), as modified by § 13202(a)

of the Act, imposes dollar limitations on the depreciation deduction for the year the

taxpayer places the passenger automobile in service and for each succeeding year.

For a passenger automobile that is qualified property under § 168(k) and for which the

100-percent additional first year depreciation deduction is allowable, § 168(k)(2)(F)(i)

increases the first year limitation amount under § 280F(a)(1)(A)(i) by $8,000. On April

30, 2018, the Treasury Department and the Internal Revenue Service (IRS) published

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Rev. Proc. 2018-25, 2018-18 I.R.B. 543, which provides the dollar limitation amounts

provided in § 280F(a)(1)(A)(i) that apply to passenger automobiles first placed in service

by the taxpayer during calendar year 2018.

.05 Under § 280F(a)(1)(B), the unrecovered basis of any passenger automobile

is treated as an expense for the first taxable year after the recovery period, subject to

the limitation under § 280F(a)(1)(B)(ii). Under that section, the unrecovered basis that

may be treated as an expense in any succeeding taxable year may not exceed $5,760

ed in service

by the taxpayer during calendar year 2018.

.05 Under § 280F(a)(1)(B), the unrecovered basis of any passenger automobile

is treated as an expense for the first taxable year after the recovery period, subject to

the limitation under § 280F(a)(1)(B)(ii). Under that section, the unrecovered basis that

may be treated as an expense in any succeeding taxable year may not exceed $5,760.

.06 Section 280F(d)(1) provides that any deduction allowable under § 179 for a

passenger automobile is subject to the limitations of § 280F(a) in the same manner as if

it were a depreciation deduction allowable under § 168.

.07 Section 280F(d)(7) provides that the limitations of § 280F(a) will be adjusted

for inflation for any passenger automobile placed in service by the taxpayer after 2018.

SECTION 3. SCOPE AND DEFINITIONS

.01 Scope. This revenue procedure applies to a passenger automobile (other

than a leased passenger automobile):

(1) That is acquired and placed in service by the taxpayer after September 27,

2017;

(2) That is qualified property under § 168(k) for which the 100-percent

additional first year depreciation deduction is allowable;

(3) That has an unadjusted depreciable basis, as defined in section 3.02(5) of

this revenue procedure, exceeding the first year limitation amount under

§ 280F(a)(1)(A)(i); and

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(4) For which the taxpayer did not elect to treat the cost or a portion of the cost

as an expense under § 179.

.02 Definitions. Solely for purposes of this revenue procedure, the following

definitions apply:

(1) Adjusted depreciable basis is the unadjusted depreciable basis, as defined in

section 3.02(5) of this revenue procedure, of the passenger automobile reduced by the

depreciation deductions allowable under the safe harbor method of accounting provided

in section 4.03 of this revenue procedure.

efinitions. Solely for purposes of this revenue procedure, the following

definitions apply:

(1) Adjusted depreciable basis is the unadjusted depreciable basis, as defined in

section 3.02(5) of this revenue procedure, of the passenger automobile reduced by the

depreciation deductions allowable under the safe harbor method of accounting provided

in section 4.03 of this revenue procedure.

(2) Applicable optional depreciation table is based on the depreciation system,

depreciation method, recovery period, and convention applicable to the passenger

automobile for its placed-in-service year, as provided in section 8 of Rev. Proc. 87-57,

1987-2 C.B. 687, 693. See Appendix A in IRS Publication 946 for the applicable

optional depreciation tables.

(3) Passenger automobile is defined in § 280F(d)(5).

(4) Remaining adjusted depreciable basis is the unadjusted depreciable basis, as

defined in section 3.02(5) of this revenue procedure, of the passenger automobile

reduced by the first year limitation amount allowable under section 4.03(2) of this

revenue procedure.

(5) Unadjusted depreciable basis is defined in § 1.168(b)-1(a)(3) of the Income

Tax Regulations, except that there is no reduction by reason of an election to expense

any portion of the basis under § 179.

(6) Unrecovered basis is defined in § 280F(d)(8).

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SECTION 4. SAFE HARBOR FOR SECTION 280F(a) LIMITATIONS ON

PASSENGER AUTOMOBILES

.01 In general. If the unadjusted depreciable basis of a passenger automobile for

which the 100-percent additional first year depreciation deduction is allowable exceeds

the first year limitation amount under § 280F(a)(1)(A)(i), the excess amount is the

unrecovered basis of the passenger automobile for purposes of § 280F(a)(1)(B)(i) and,

therefore, is treated as a deductible expense in the first taxable year succeeding the

end of the recovery period subject to the limitation under § 280F(a)(1)(B)(ii)

ional first year depreciation deduction is allowable exceeds

the first year limitation amount under § 280F(a)(1)(A)(i), the excess amount is the

unrecovered basis of the passenger automobile for purposes of § 280F(a)(1)(B)(i) and,

therefore, is treated as a deductible expense in the first taxable year succeeding the

end of the recovery period subject to the limitation under § 280F(a)(1)(B)(ii). For

example, if a calendar-year taxpayer places in service in December 2018 a passenger

automobile that costs $50,000 and is qualified property for which the 100-percent

additional first year depreciation deduction is allowable, the 100-percent additional first

year depreciation deduction and any § 179 deduction for this property is limited to

$18,000 under § 280F(a)(1)(A)(i) (see Table 2 of Rev. Proc. 2018-25) and the excess

amount of $32,000 is recovered by the taxpayer beginning in 2024, subject to the

annual limitation of $5,760 under § 280F(a)(1)(B)(ii).

.02 Safe harbor method of accounting. To mitigate the anomalous result that

occurs in the taxable years subsequent to the placed-in-service year and before the first

taxable year succeeding the end of the recovery period for a passenger automobile

within the scope of this revenue procedure, the Treasury Department and the IRS

provide a safe harbor method of accounting under section 4.03 of this revenue

procedure. A taxpayer adopts this safe harbor method of accounting by applying it to

deduct depreciation of its passenger automobile on its federal tax return for the first

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taxable year succeeding the placed-in-service year of the passenger automobile. To

use the safe harbor method of accounting, the taxpayer must comply with section 4.03

of this revenue procedure. If a taxpayer’s taxable year is less than 12 months, the

depreciation deductions determined under section 4.03 of this revenue procedure must

be adjusted for a short taxable year (for further guidance, see Rev. Proc. 89-15, 1989-1

C.B. 816)

ice year of the passenger automobile. To

use the safe harbor method of accounting, the taxpayer must comply with section 4.03

of this revenue procedure. If a taxpayer’s taxable year is less than 12 months, the

depreciation deductions determined under section 4.03 of this revenue procedure must

be adjusted for a short taxable year (for further guidance, see Rev. Proc. 89-15, 1989-1

C.B. 816).

.03 Operation of the safe harbor. For a taxpayer with a passenger automobile

within the scope of this revenue procedure, the safe harbor method of accounting

operates as follows:

(1) The taxpayer must use the applicable optional depreciation table for

computing the depreciation deductions for the passenger automobile;

(2) For the placed-in-service year of the passenger automobile, the taxpayer

deducts the first year limitation amount under § 280F(a)(1)(A)(i). See Table 2 of Rev.

Proc. 2018-25 for the first year limitation amount under § 280F(a)(1)(A)(i) for a

passenger automobile placed in service in calendar year 2018 for which the 100-

percent additional first year depreciation deduction is allowable. For a passenger

automobile placed in service after 2018, further guidance will be issued to provide the

limitation amounts under § 280F(a)(1) for the applicable placed-in-service year;

(3) For the 12-month taxable year subsequent to the placed-in-service year and

for each succeeding 12-month taxable year in the recovery period, the taxpayer

determines the depreciation deduction for the passenger automobile by multiplying the

remaining adjusted depreciable basis of the passenger automobile by the annual

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depreciation rate for each taxable year subsequent to the placed-in-service year

specified in the applicable optional depreciation table, subject to the limitation amounts

under § 280F(a)(1)(A);

overy period, the taxpayer

determines the depreciation deduction for the passenger automobile by multiplying the

remaining adjusted depreciable basis of the passenger automobile by the annual

7

depreciation rate for each taxable year subsequent to the placed-in-service year

specified in the applicable optional depreciation table, subject to the limitation amounts

under § 280F(a)(1)(A);

(4) The adjusted depreciable basis of the passenger automobile as of the

beginning of the first taxable year succeeding the end of the recovery period is treated

as a deductible depreciation expense for the first taxable year succeeding the end of the

recovery period, subject to the limitation under § 280F(a)(1)(B)(ii). Any excess is

treated as a deductible depreciation expense for the succeeding taxable years, subject

to the limitation under § 280F(a)(1)(B)(ii); and

(5) If § 280F(b) applies to the passenger automobile in a taxable year

subsequent to the placed-in-service year, the safe harbor method of accounting ceases

to apply beginning for the first year in which § 280F(b) applies. Any passenger

automobile that is not predominantly used in a qualified business use, as defined in

§ 280F(d)(6)(B) and (C), for any taxable year is subject to § 280F(b) for such taxable

year and any subsequent taxable year.

.04 Examples. The following examples illustrate the application of the safe

harbor method of accounting.

ply beginning for the first year in which § 280F(b) applies. Any passenger

automobile that is not predominantly used in a qualified business use, as defined in

§ 280F(d)(6)(B) and (C), for any taxable year is subject to § 280F(b) for such taxable

year and any subsequent taxable year.

.04 Examples. The following examples illustrate the application of the safe

harbor method of accounting.

(1) Example 1 -- Application of § 280F(a) safe harbor method of accounting. In

2018, X, a calendar-year taxpayer, purchased and placed in service for use in its

business a new passenger automobile that costs $60,000. The passenger automobile

is 5-year property under § 168(e), is qualified property under § 168(k) for which the 100-

percent additional first year depreciation deduction is allowable, and is used 100

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percent in X’s trade or business. X does not claim a § 179 deduction for the passenger

automobile and does not make an election under § 168(b), (g)(7), or (k). X depreciates

the passenger automobile under the general depreciation system by using the 200-

percent declining balance method, a 5-year recovery period, and the half-year

convention. X adopts the safe harbor method of accounting provided in section 4.03 of

this revenue procedure. As a result:

(a) X must use the applicable optional depreciation table that corresponds with

the 200-percent declining balance method of depreciation, a 5-year recovery period,

and the half-year convention, for determining the depreciation deductions for the

passenger automobile (see Table A-1 in Appendix A of IRS Publication 946);

(b) For 2018, X deducts depreciation of $18,000 for the passenger automobile,

which is the depreciation limitation for 2018 under § 280F(a)(1)(A)(i) (see Table 2 in

Rev. Proc. 2018-25). As a result, the remaining adjusted depreciable basis of the

passenger automobile as of January 1, 2019, is $42,000 ($60,000 unadjusted

depreciable basis less $18,000 depreciation deduction claimed for 2018);

(b) For 2018, X deducts depreciation of $18,000 for the passenger automobile,

which is the depreciation limitation for 2018 under § 280F(a)(1)(A)(i) (see Table 2 in

Rev. Proc. 2018-25). As a result, the remaining adjusted depreciable basis of the

passenger automobile as of January 1, 2019, is $42,000 ($60,000 unadjusted

depreciable basis less $18,000 depreciation deduction claimed for 2018);

(c) For 2019 through 2023, the total depreciation allowable for the passenger

automobile for each taxable year is determined by multiplying the annual depreciation

rate in the applicable optional depreciation table by the remaining adjusted depreciable

basis of $42,000, subject to the limitation under § 280F(a)(1)(A) for that year.

Accordingly, for 2019, the total depreciation allowable for the passenger automobile is

$13,440 (32 percent multiplied by the remaining adjusted depreciable basis of $42,000).

Because this amount is less than the depreciation limitation of $16,000 for 2019 (see

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Table 2 in Rev. Proc. 2018-25), X deducts $13,440 as depreciation on its federal

income tax return for the 2019 taxable year. For 2020, the total depreciation allowable

for the passenger automobile is $8,064 (19.20 percent multiplied by $42,000). Because

this amount is less than the depreciation limitation of $9,600 for 2020 (see Table 2 in

Rev. Proc. 2018-25), X deducts $8,064 as depreciation on its federal income tax return

for the 2020 taxable year. Below is a table showing the depreciation allowable for the

passenger automobile under the safe harbor method of accounting for the 2018 through

2023 taxable years. X deducts these amounts.

Taxable year

Depreciation limitations under

Table 2 of Rev. Proc

r 2020 (see Table 2 in

Rev. Proc. 2018-25), X deducts $8,064 as depreciation on its federal income tax return

for the 2020 taxable year. Below is a table showing the depreciation allowable for the

passenger automobile under the safe harbor method of accounting for the 2018 through

2023 taxable years. X deducts these amounts.

Taxable year

Depreciation limitations under

Table 2 of Rev. Proc. 2018-

25

Depreciation deduction under the

safe harbor

2018

$18,000

$18,000

2019

$16,000

$13,440 ($42,000 x .32)

2020

$ 9,600

$ 8,064 ($42,000 x .1920)

2021

$ 5,760

$ 4,838 ($42,000 x .1152)

2022

$ 5,760

$ 4,838 ($42,000 x .1152)

2023

$ 5,760

$ 2,419 ($42,000 x .0576)

TOTAL

$51,599

(d) As of January 1, 2024 (the beginning of the first taxable year succeeding the

end of the recovery period), the adjusted depreciable basis of the passenger automobile

is $8,401 ($60,000 unadjusted depreciable basis less the total depreciation allowable of

$51,599 for 2018-2023 (see above table)). Accordingly, for the 2024 taxable year, X

deducts depreciation of $5,760 for the passenger automobile (the lesser of the adjusted

depreciable basis of $8,401 as of January 1, 2024, or the § 280F(a)(1)(B)(ii) limitation of

$5,760).

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(e) As of January 1, 2025, the adjusted depreciable basis of the passenger

automobile is $2,641 ($8,401 adjusted depreciable basis as of January 1, 2024, less the

depreciation claimed of $5,760 for 2024). Accordingly, for the 2025 taxable year, X

deducts depreciation of $2,641 for the passenger automobile (the lesser of the adjusted

depreciable basis of $2,641 as of January 1, 2025, or the § 280F(a)(1)(B)(ii) limitation of

$5,760).

eciable basis of the passenger

automobile is $2,641 ($8,401 adjusted depreciable basis as of January 1, 2024, less the

depreciation claimed of $5,760 for 2024). Accordingly, for the 2025 taxable year, X

deducts depreciation of $2,641 for the passenger automobile (the lesser of the adjusted

depreciable basis of $2,641 as of January 1, 2025, or the § 280F(a)(1)(B)(ii) limitation of

$5,760).

(2) Example 2 -- Section 179 deduction claimed. The facts are the same as in

Example 1, except X elects to treat $18,000 of the cost of the passenger automobile as

an expense under § 179. As a result, this passenger automobile is not within the scope

of this revenue procedure pursuant to section 3.01(4) of this revenue procedure.

Accordingly, the safe harbor method of accounting in section 4.03 of this revenue

procedure does not apply to the passenger automobile. For 2018, the 100-percent

additional first year depreciation deduction and the § 179 deduction for this passenger

automobile is limited to $18,000 under § 280F(a)(1)(A)(i) (see Table 2 of Rev. Proc.

2018-25). Therefore, for 2018, X deducts $18,000 for the passenger automobile under

§ 179, and X deducts the excess amount of $42,000 beginning in 2024, subject to the

annual limitation of $5,760 under § 280F(a)(1)(B)(ii).

(3) Example 3 – Section 168(k)(7) election made. The facts are the same as in

Example 1, except X makes an election under § 168(k)(7) to not claim the 100-percent

additional first year depreciation deduction for 5-year property placed in service during

2018. As a result, the 100-percent additional first year depreciation deduction is not

allowable for the passenger automobile. Accordingly, the passenger automobile is not

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within the scope of this revenue procedure pursuant to section 3.01(2) of this revenue

procedure, and the safe harbor method of accounting in section 4.03 of this revenue

procedure does not apply to the passenger automobile

a result, the 100-percent additional first year depreciation deduction is not

allowable for the passenger automobile. Accordingly, the passenger automobile is not

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within the scope of this revenue procedure pursuant to section 3.01(2) of this revenue

procedure, and the safe harbor method of accounting in section 4.03 of this revenue

procedure does not apply to the passenger automobile. For 2018 and subsequent

taxable years, X determines the depreciation deductions for the passenger automobile

in accordance with the general depreciation system of § 168(a), subject to the § 280F(a)

limitations.

SECTION 5. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2018-25 is amplified as provided in section 4.03 of this revenue

procedure.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective on February 13, 2019.

SECTION 7. DRAFTING INFORMATION

The principal author of this revenue procedure is Jaime C. Park of the Office of

Associate Chief Counsel (Income Tax & Accounting). For further information regarding

this revenue procedure contact Ms. Park on (202) 317-7005 (not a toll free call).