DEFINITION of Luxury Automobile Limitations
Luxury Automobile Limitations is the annual limit on the amount of depreciation that can be taken on a luxury car used for business purposes. This amount is indexed each year for inflation. The purpose of luxury automobile limitations is to control the type and amount of money spent on luxury automobiles by businesses for tax purposes.
BREAKING DOWN Luxury Automobile Limitations
The limitations apply to any four-wheeled vehicle used primarily on public streets. The economic stimulus package of 2008 temporarily raised the luxury automobile limitations to $10,960 for cars and $11,060 for trucks and vans.
As per the IRS: In 2018, the new Tax Law and Jobs Act changed depreciation limits for passenger vehicles placed in service after Dec. 31, 2017. If the taxpayer doesn’t claim bonus depreciation, the greatest allowable depreciation deduction is:
- $10,000 for the first year,
- $16,000 for the second year,
- $9,600 for the third year, and
- $5,760 for each later taxable year in the recovery period.
There are several different categories of luxury cars, and each has a different depreciation schedule. It's important to note that the term "luxury vehicle" under IRS definition is a vehicle with four wheels used mainly on public motorways and must have an unloaded gross weight of 6,000 pounds or less.