Do the Passenger Automobile Limits Apply?(p68)

The depreciation deduction, including the section 179 deduction, you can claim for a passenger automobile (defined earlier) each year is limited.

This section describes the maximum depreciation deduction amounts for 2008 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit.

The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property, earlier, under What Is the Business-Use Requirement.

The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. They are based on the date you placed the automobile in service.

The maximum deduction amounts for most passenger automobiles are shown in the following table.

Date				4th &
Placed	1st	2nd	3rd	Later
In Service	Year	Year	Year	Years
2008	$10,9601	$4,800	$2,850	$1,775
2007	3,060	4,900	2,850	1,775
2006	2,960	4,800	2,850	1,775
2005	2,960	4,700	2,850	1,675
2004	10,6102	4,800	2,850	1,675
5/06/2003– 12/31/2003	10,7103	4,900	2,950	1,775
1/01/2003– 5/05/2003	7,6604	4,900	2,950	1,775
2002	7,6604	4,900	2,950	1,775
2001	7,6605	4,900	2,950	1,775
2000	3,060	4,900	2,950	1,775
1999	3,060	5,000	2,950	1,775
1998	3,160	5,000	2,950	1,775
1997	3,160	5,000	3,050	1,775
1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960.
2If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960.
3If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060.
4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060.
5 If you acquired the vehicle before 9/11/01, you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060.

On April 15, 2008, Virginia Hart bought and placed in service a new car for $14,500. She used the car only in her business. She files her tax return based on the calendar year. She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Under MACRS, a car is 5-year property. Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Virginia multiplies the $14,500 unadjusted basis of her car by 0.20 to get her MACRS depreciation of $2,900 for 2008. This $2,900 is below the maximum depreciation deduction of $2,960 for passenger automobiles placed in service in 2008. She can deduct the full $2,900.

The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts on page 68 for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts on page 70 for electric vehicles classified as trucks and vans.

Date				4th &
Placed	1st	2nd	3rd	Later
In Service	Year	Year	Year	Years
2006	$8,980	$14,400	$8,650	$5,225
2005	8,880	14,200	8,450	5,125
2004	31,8301	14,300	8,550	5,125
5/06/2003– 12/31/2003	32,0302	14,600	8,750	5,225
1/01/2003– 5/05/2003	22,8803	14,600	8,750	5,225
2002	22,9804	14,700	8,750	5,325
2001	23,0805	14,800	8,850	5,325
2000	9,280	14,800	8,850	5,325
1999	9,280	14,900	8,950	5,325
1998	9,380	15,000	8,950	5,425
1997	9,480	15,100	9,050	5,425
1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880.
2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080.
3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080.
4 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,180.
5 If you acquired the vehicle before 9/11/01, you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,280.

The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. The maximum deduction amounts for trucks and vans are shown in the following table.

Date				4th &
Placed	1st	2nd	3rd	Later
In Service	Year	Year	Year	Years
2008	$11,1601	$5,100	$3,050	$1,875
2007	3,260	5,200	3,050	1,875
2006	3,260	5,200	3,150	1,875
2005	3,260	5,200	3,150	1,875
2004	10,9102	5,300	3,150	1,875
5/06/2003– 12/31/2003	11,0103	5,400	3,250	1,975
1/01/2003– 5/05/2003	7,9604	5,400	3,250	1,975
1If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, the maximum deduction is $3,160.
2If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,260.
3 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360.
4 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360.

You can use the following worksheet to figure your depreciation deduction using the percentage tables. Then use the information from this worksheet to prepare Form 4562. taxmap/pubs/p946-032.htm#w13081f45

Depreciation Worksheet for Passenger Automobiles Part I 1. MACRS system (GDS or ADS)              2. Property class              3. Date placed in service              4. Recovery period              5. Method and convention              6. Depreciation rate (from tables)              7. Maximum depreciation deduction for this year from the appropriate table                8. Business/investment-use percentage                9. Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction                10. Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you placed the car in service.                  Note. 1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction is limited to the amount on line 9. 2) If line 10 is less than line 9, complete Part II. Part II 11. Subtract line 10 from line 9. This is the maximum amount you can deduct for depreciation                12. Cost or other basis                13. Multiply line 12 by line 8. This is your business/investment cost                14. Section 179 deduction and any special depreciation allowance claimed in the year you placed the car in service                15. Subtract line 14 from line 13. This is your basis for depreciation                16. Multiply line 15 by line 6. This is your tentative MACRS depreciation deduction                17. Enter the lesser of line 11 or line 16. This is your MACRS depreciation deduction

The following example shows how to figure your depreciation deduction using the worksheet.

On September 26, 2008, Donald Banks bought and placed in service a new car for $18,000. He used the car 60% for business during 2008. He files his tax return based on the calendar year. Under GDS, his car is 5-year property. Donald is electing a section 179 deduction of $1,000 on the car. Also, the car does not qualify for any special depreciation allowance. He uses Table A-1 to determine the depreciation rate. Donald's MACRS depreciation deduction is limited to $836, as shown in the following worksheet. taxmap/pubs/p946-032.htm#w13081f06

Depreciation Worksheet for Passenger Automobiles Part I 1. MACRS system (GDS or ADS) GDS 2. Property class 5-year 3. Date placed in service 9/26/08 4. Recovery period 5-Year 5. Method and convention 200% DB/Half-Year 6. Depreciation rate (from tables) .20 7. Maximum depreciation deduction for this year from the appropriate table $3,060   8. Business/investment-use percentage 60%   9. Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction   $1,836 10. Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you placed the car in service.   $1,000   Note. 1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction is limited to the amount on line 9. 2) If line 10 is less than line 9, complete Part II. Part II 11. Subtract line 10 from line 9. This is the maximum amount you can deduct for depreciation   $836 12. Cost or other basis $18,000   13. Multiply line 12 by line 8. This is your business/investment cost $10,800   14. Section 179 deduction and any special depreciation allowance claimed in year you placed the car in service $1,000   15. Subtract line 14 from line 13. This is your basis for depreciation $9,800   16. Multiply line 15 by line 6. This is your tentative MACRS depreciation deduction   $1,960 17. Enter the lesser of line 11 or line 16. This is your MACRS depreciation deduction   $836

If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. See Maximum Depreciation Deduction, earlier.

Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied.

In May 2002, you bought and placed in service a car costing $31,500. The car was 5-year property under GDS (MACRS). You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. You used the car exclusively for business during the recovery period (2002 through 2007). You figured your depreciation as shown below.

Year	Percentage	Amount	Limit		Allowed
2002	20.0%	$6,300	$3,060		$3,060
2003	32.0	10,080	4,900		4,900
2004	19.2	6,048	2,950		2,950
2005	11.52	3,629	1,775		1,775
2006	11.52	3,629	1,775		1,775
2007	5.76	1,814	1,775		1,775
Total					$16,235

At the end of 2007, you had an unrecovered basis of $15,265 ($31,500 − $16,235). If in 2008 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,775 or your remaining unrecovered basis.

If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,741 ($16,235 × 60%), but you still would have to reduce your basis by $16,235 to determine your unrecovered basis.

If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. If the automobile acquired in the trade-in is qualified GO Zone property, the carryover basis is eligible for a special depreciation allowance. See Qualified Gulf Opportunity Zone Property in chapter 3. Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. This excess basis is the additional cash paid for the new automobile in the trade-in.

The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Special rules apply in determining the passenger automobile limits. These rules and examples are discussed in section 1.168(i)-6(d)(3) of the regulations.

Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1.168(i)-6(i) and 1.168(i)-6(j) of the regulations.