26 U.S.C. § 280F: Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes

§ 1.280F-1T Limitations on investment tax credit and recovery deductions under section 168 for passenger automobiles and certain other listed property; overview of regulations (temporary).§ 1.280F-2T Limitations on recovery deductions and the investment tax credit for certain passenger automobiles (temporary).§ 1.280F-3T Limitations on recovery deductions and the investment tax credit when the business use percentage of listed property is not greater than 50 percent (temporary).§ 1.280F-4T Special rules for listed property (temporary).§ 1.280F-5T Leased property (temporary).§ 1.280F-6 Special rules and definitions.§ 1.280F-7 Property leased after December 31, 1986.

Amended 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(E), struck out “investment tax credit and” after “Limitation on” in section catchline.

Cases: Noyce v. Commissioner, 97 T.C. 670 (1991)

Forms: Form 3115

Final rules 2

(a) Limitation on amount of depreciation for luxury automobiles

Amended 1986, 1990, 1996

1996 Pub. L. 104-188 Pub. L. 104–188 struck out “investment tax credit and” after “amount of” in heading.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(A)(i), redesignated par. (3) as (2).
1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(A)(i), struck out par. (4) “Special rule where election of reduced credit in lieu of the basis adjustment” which read as follows: “In the case of any election under section 48(q)(4) with respect to any passenger automobile, the limitation of paragraph (1) applicable to such passenger automobile shall be ⅔ of the amount which would be so applicable but for this paragraph.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(K), substituted “depreciation deduction” for “recovery deduction” in two places.

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(1) Depreciation

Amended 1985, 1990, 1997, 1998, 2002, 2014

2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(34)(E), struck out subpar. (C) which related to special rules for certain automobiles modified to be propelled by a clean burning fuel and for purpose built passenger vehicles that were placed in service between Aug. 5, 1997, and Jan. 1, 2007.
2002 Pub. L. 107-147 Pub. L. 107–147 added cl. (iii).
1998 Pub. L. 105-206 Pub. L. 105–206 substituted “subparagraphs (A) and (B)” for “subparagraph (A)”.
1997 Pub. L. 105-34 Pub. L. 105–34 added subpar. (C).
1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(A)(i), redesignated par. (2) as (1) and struck out former par. (1) “Investment tax credit” which read as follows: “The amount of the credit determined under section 46(a) for any passenger automobile shall not exceed $675.”
1985 Pub. L. 99-44 Pub. L. 99–44, § 4(a)(1), substituted “$675” for “$1,000”.

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(A) Limitation The amount of the depreciation deduction for any taxable year for any passenger automobile shall not exceed—

(i) $10,000 for the 1st taxable year in the recovery period,

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(1)(A), substituted “$10,000” for “$2,560”.

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(ii) $16,000 for the 2nd taxable year in the recovery period,

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(1)(B), substituted “$16,000” for “$4,100”.

(iii) $9,600 for the 3rd taxable year in the recovery period, and

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(1)(C), substituted “$9,600” for “$2,450”.

(iv) $5,760 for each succeeding taxable year in the recovery period.

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(1)(D), substituted “$5,760” for “$1,475”.

(B) Disallowed deductions allowed for years after recovery period

(i) In general Except as provided in clause (ii), the unrecovered basis of any passenger automobile shall be treated as an expense for the 1st taxable year after the recovery period. Any excess of the unrecovered basis over the limitation of clause (ii) shall be treated as an expense in the succeeding taxable year.

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(ii) $5,760 limitation The amount treated as an expense under clause (i) for any taxable year shall not exceed $5,760.

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(2)(A), substituted “$5,760” for “$1,475” in heading and text.

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(iii) Property must be depreciable No amount shall be allowable as a deduction by reason of this subparagraph with respect to any property for any taxable year unless a depreciation deduction would be allowable with respect to such property for such taxable year.

(iv) Amount treated as depreciation deduction For purposes of this subtitle, any amount allowable as a deduction by reason of this subparagraph shall be treated as a depreciation deduction allowable under section 168.

(2) Coordination with reductions in amount allowable by reason of personal use, etc. This subsection shall be applied before—

Amended 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(A)(i), redesignated par. (3) as (2). Former par. (2) redesignated (1).

(A) the application of subsection (b), and

Amended 1985, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(A)(i), (K), substituted “depreciation deduction” for “recovery deduction” in introductory provisions and substituted cls. (i) to (iv) for former cls. (i) and (ii) which read as follows:
1986 “(i) $3,200 for the first taxable year in the recovery period, and
1986 “(ii) $4,800 for each succeeding taxable year in the recovery period.”
1985 Pub. L. 99-44 Pub. L. 99–44, § 4(a)(2)(A), substituted “$3,200” for “$4,000”.
1985 Pub. L. 99-44 Pub. L. 99–44, § 4(a)(2)(B), substituted “$4,800” for “$6,000” wherever appearing in text and heading.

(B) the application of any other reduction in the amount of any depreciation deduction allowable under section 168 by reason of any use not qualifying the property for such credit or depreciation deduction.

Amended 1986, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(A)(ii), struck out “the credit determined under section 46(a) or” after “the amount of”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(A)(ii), (K), substituted “$1,475” for “$4,800” in heading and text of cl. (ii), and “depreciation deduction” for “recovery deduction” in heading and text of cl. (iv).

(b) Limitation where business use of listed property not greater than 50 percent

Amended 1986, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(B), redesignated pars. (2) to (4) as (1) to (3), respectively, and struck out former par. (1) “Investment tax credit” which read as follows: “For purposes of this subtitle, any listed property shall not be treated as section 38 property for any taxable year unless such property is predominantly used in a qualified business use for such taxable year.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(C), in amending par. (4) generally, struck out heading “Definitions”, redesignated as par. (4) former subpar. (A) heading and text, substituted “For purposes of this section, property” for “Property”, and struck out former subpar. (B) definition of straight line method over earnings and profits life.

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(1) Depreciation If any listed property is not predominantly used in a qualified business use for any taxable year, the deduction allowed under section 168 with respect to such property for such taxable year and any subsequent taxable year shall be determined under section 168(g) (relating to alternative depreciation system).

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(2) Recapture

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(J), substituted “section 168(g) (relating to alternative depreciation system)” for “the straight line method over the earnings and profits life for such property”.

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(A) Where business use percentage does not exceed 50 percent If—

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(i) property is predominantly used in a qualified business use in a taxable year in which it is placed in service, and

(ii) such property is not predominantly used in a qualified business use for any subsequent taxable year,

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then any excess depreciation shall be included in gross income for the taxable year referred to in clause (ii), and the depreciation deduction for the taxable year referred to in clause (ii) and any subsequent taxable years shall be determined under section 168(g) (relating to alternative depreciation system).

(B) Excess depreciation For purposes of subparagraph (A), the term “excess depreciation” means the excess (if any) of—

(i) the amount of the depreciation deductions allowable with respect to the property for taxable years before the 1st taxable year in which the property was not predominantly used in a qualified business use, over

(ii) the amount which would have been so allowable if the property had not been predominantly used in a qualified business use for the taxable year in which it was placed in service.

(3) Property predominantly used in qualified business use For purposes of this subsection, property shall be treated as predominantly used in a qualified business use for any taxable year if the business use percentage for such taxable year exceeds 50 percent.

Amended 1986, 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1018(u)(3), substituted “depreciation deductions” for “recovery deductions”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(B), (K), substituted “depreciation deduction” for “recovery deduction” and “section 168(g) (relating to alternative depreciation system)” for “the straight line method over the earnings and profits life” in closing provisions.

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(1) Lessor’s deductions not affected This section shall not apply to any listed property leased or held for leasing by any person regularly engaged in the business of leasing such property.

Amended 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(C), struck out “credits and” after “Lessor’s” in heading.

(2) Lessee’s deductions reduced For purposes of determining the amount allowable as a deduction under this chapter for rentals or other payments under a lease for a period of 30 days or more of listed property, only the allowable percentage of such payments shall be taken into account.

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(3) Allowable percentage For purposes of paragraph (2), the allowable percentage shall be determined under tables prescribed by the Secretary. Such tables shall be prescribed so that the reduction in the deduction under paragraph (2) is substantially equivalent to the applicable restrictions contained in subsections (a) and (b).

(4) Lease term In determining the term of any lease for purposes of paragraph (2), the rules of section 168(i)(3)(A) shall apply.

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(D), substituted “section 168(i)(3)(A)” for “section 168(j)(6)(B)”.

(5) Lessee recapture Under regulations prescribed by the Secretary, rules similar to the rules of subsection (b)(3) shall apply to any lessee to which paragraph (2) applies.

(d) Definitions and special rules For purposes of this section—

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(1) Coordination with section 179 Any deduction allowable under section 179 with respect to any listed property shall be subject to the limitations of subsections (a) and (b), and the limitation of paragraph (3) of this subsection, in the same manner as if it were a depreciation deduction allowable under section 168.

Amended 1986, 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1002(b)(2), substituted “subsections (a) and (b), and the limitation of paragraph (3) of this subsection,” for “subsections (a) and (b)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(E), substituted “depreciation deduction” for “recovery deduction”.

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(2) Subsequent depreciation deductions reduced for deductions allocable to personal use Solely for purposes of determining the amount of the depreciation deduction for subsequent taxable years, if less than 100 percent of the use of any listed property during any taxable year is use in a trade or business (including the holding for the production of income), all of the use of such property during such taxable year shall be treated as use so described.

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(e)(5), substituted “is use described in” for “is not use described in”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(F), substituted “depreciation deduction” for “recovery deduction” and “use in a trade or business (including the holding for the production of income)” for “use described in section 168(c)(1) (defining recovery property)”.

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(3) Deductions of employee

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(A) In general Any employee use of listed property shall not be treated as use in a trade or business for purposes of determining the amount of any depreciation deduction allowable to the employee (or the amount of any deduction allowable to the employee for rentals or other payments under a lease of listed property) unless such use is for the convenience of the employer and required as a condition of employment.

NOT“unless such use is for the convenience of the employer and required as a condition of employment.” Opening words

Textual readingALL OF= not business use for employee depreciation or lease deductions

“Any employee use of listed property”

Amended 1986, 1988, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(13)(D), struck out “the amount of any credit allowable under section 38 to the employee or” after “of determining”.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1002(a)(10), substituted “depreciation deduction” for “recovery deduction”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(e)(2), inserted “(or the amount of any deduction allowable to the employee for rentals or other payments under a lease of listed property)”.

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(B) Employee use For purposes of subparagraph (A), the term “employee use” means any use in connection with the performance of services as an employee.

(4) Listed property

Amended 1986, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(b)(2), redesignated subpar. (C) as (B) and struck out former subpar. (B). Prior to amendment, text of subpar. (B) read as follows: “The term ‘listed property’ shall not include any computer or peripheral equipment (as so defined) used exclusively at a regular business establishment and owned or leased by the person operating such establishment. For purposes of the preceding sentence, any portion of a dwelling unit shall be treated as a regular business establishment if (and only if) the requirements of section 280A(c)(1) are met with respect to such portion.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(e)(4), added subpar. (C).

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(A) In general Except as provided in subparagraph (B), the term “listed property” means—

Amended 1989, 2010, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(b)(1), redesignated cl. (v) as (iv) and struck out former cl. (iv) which read as follows: “any computer or peripheral equipment (as defined in section 168(i)(2)(B)), ‘and’ ”.
2010 Pub. L. 111-240 Pub. L. 111–240 inserted “ ‘and’ ” at end of clause (iv), redesignated clause (vi) as (v), and struck out former cl. (v) which read as follows: “any cellular telephone (or other similar telecommunications equipment), and”.
1989 Pub. L. 101-239 Pub. L. 101–239 added cl. (v) and redesignated former cl. (v) as (vi).

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(i) any passenger automobile,

(ii) any other property used as a means of transportation,

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(iii) any property of a type generally used for purposes of entertainment, recreation, or amusement, and

(iv) any other property of a type specified by the Secretary by regulations.

Amended 1986, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(b)(1), redesignated cl. (v) as (iv) and struck out former cl. (iv) which read as follows: “any computer or peripheral equipment (as defined in section 168(i)(2)(B)), ‘and’ ”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(G), substituted “section 168(i)(2)(B)” for “section 168(j)(5)(D)”.

(B) Exception for property used in business of transporting persons or property Except to the extent provided in regulations, clause (ii) of subparagraph (A) shall not apply to any property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire.

Amended 1986, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(b)(2), redesignated subpar. (C) as (B) and struck out former subpar. (B). Prior to amendment, text of subpar. (B) read as follows: “The term ‘listed property’ shall not include any computer or peripheral equipment (as so defined) used exclusively at a regular business establishment and owned or leased by the person operating such establishment. For purposes of the preceding sentence, any portion of a dwelling unit shall be treated as a regular business establishment if (and only if) the requirements of section 280A(c)(1) are met with respect to such portion.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(e)(3), inserted “and owned or leased by the person operating such establishment”.

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(5) Passenger automobile

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(A) In general Except as provided in subparagraph (B), the term “passenger automobile” means any 4-wheeled vehicle—

NOT“Except as provided in subparagraph (B),” Opening words

“any 4-wheeled vehicle—” Opening words

Textual readingALL OF= a passenger automobile

(i) which is manufactured primarily for use on public streets, roads, and highways, and

(ii) which is rated at 6,000 pounds unloaded gross vehicle weight or less.

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In the case of a truck or van, clause (ii) shall be applied by substituting “gross vehicle weight” for “unloaded gross vehicle weight”.

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 1812(e)(1)(A), (C), substituted “unloaded gross vehicle weight” for “gross vehicle weight” in cl. (ii) and inserted at end “In the case of a truck or van, clause (ii) shall be applied by substituting ‘gross vehicle weight’ for ‘unloaded gross vehicle weight’.”

(B) Exception for certain vehicles The term “passenger automobile” shall not include—

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(i) any ambulance, hearse, or combination ambulance-hearse used by the taxpayer directly in a trade or business,

(ii) any vehicle used by the taxpayer directly in the trade or business of transporting persons or property for compensation or hire, and

(iii) under regulations, any truck or van.

(6) Business use percentage

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(A) In general The term “business use percentage” means the percentage of the use of any listed property during any taxable year which is a qualified business use.

(B) Qualified business use Except as provided in subparagraph (C), the term “qualified business use” means any use in a trade or business of the taxpayer.

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(i) In general The term “qualified business use” shall not include—

Textual readingANY OF= not qualified business use

(I) leasing property to any 5-percent owner or related person,

(II) use of property provided as compensation for the performance of services by a 5-percent owner or related person, or

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(III) use of property provided as compensation for the performance of services by any person not described in subclause (II) unless an amount is included in the gross income of such person with respect to such use, and, where required, there was withholding under chapter 24.

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(ii) Special rule for aircraft Clause (i) shall not apply with respect to any aircraft if at least 25 percent of the total use of the aircraft during the taxable year consists of qualified business use not described in clause (i).

(D) Definitions For purposes of this paragraph—

(i) 5-percent owner The term “5-percent owner” means any person who is a 5-percent owner with respect to the taxpayer (as defined in section 416(i)(1)(B)(i)).

(ii) Related person The term “related person” means any person related to the taxpayer (within the meaning of section 267(b)).

(7) Automobile price inflation adjustment

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(A) In general In the case of any passenger automobile placed in service after 2018, subsection (a) shall be applied by increasing each dollar amount contained in such subsection by the automobile price inflation adjustment for the calendar year in which such automobile is placed in service. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or if the increase is a multiple of $50, such increase shall be increased to the next higher multiple of $100).

Amended 1985, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(2)(B)(i), substituted “2018” for “1988”.
1985 Pub. L. 99-44 Pub. L. 99–44, § 4(b)(1), inserted “placed in service after 1988” after “passenger automobile”.

(B) Automobile price inflation adjustment For purposes of this paragraph—

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 11002(d)(8), amended subpar. (B) generally. Prior to amendment, subpar. (B) related to automobile price inflation adjustment.

(i) In general The automobile price inflation adjustment for any calendar year is the percentage (if any) by which—

Amended 1985

1985 Pub. L. 99-44 Pub. L. 99–44, § 4(b)(3), struck out last sentence which directed that in the case of calendar year 1984, the automobile price inflation adjustment would be zero.

(I) the C-CPI-U automobile component for October of the preceding calendar year, exceeds

(II) the automobile component of the CPI (as defined in section 1(f)(4)) for October of 2017, multiplied by the amount determined under 1(f)(3)(B).

Amended 1985, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13202(a)(2)(B)(ii), substituted “2017” for “1987”.
1985 Pub. L. 99-44 Pub. L. 99–44, § 4(b)(2), substituted “1987” for “1983”.

(ii) C-CPI-U automobile component The term “C-CPI-U automobile component” means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)).

(8) Unrecovered basis For purposes of subsection (a)(1), the term “unrecovered basis” means the adjusted basis of the passenger automobile determined after the application of subsection (a) and as if all use during the recovery period were use in a trade or business (including the holding of property for the production of income).

Amended 1986, 2014

2014 Pub. L. 113-295 Pub. L. 113–295, § 220(j), substituted “subsection (a)(1)” for “subsection (a)(2)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(H), amended par. (8) generally. Prior to amendment, par. (8) read as follows: “For purposes of subsection (a)(2), the term ‘unrecovered basis’ means the excess (if any) of—
“(A) the unadjusted basis (as defined in section 168(d)(1)(A)) of the passenger automobile, over
“(B) the amount of the recovery deductions which would have been allowable for taxable years in the recovery period determined after the application of subsection (a) and as if all use during the recovery period were use described in section 168(c)(1).”

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(9) All taxpayers holding interests in passenger automobile treated as 1 taxpayer All taxpayers holding interests in any passenger automobile shall be treated as 1 taxpayer for purposes of applying subsection (a) to such automobile, and the limitations of subsection (a) shall be allocated among such taxpayers in proportion to their interests in such automobile.

(10) Special rule for property acquired in nonrecognition transactions For purposes of subsection (a)(1) any property acquired in a nonrecognition transaction shall be treated as a single property originally placed in service in the taxable year in which it was placed in service after being so acquired.

Amended 1986, 2014

2014 Pub. L. 113-295 Pub. L. 113–295, § 220(j), substituted “subsection (a)(1)” for “subsection (a)(2)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(4)(I), struck out “, notwithstanding any regulations prescribed under section 168(f)(7),” after “For purposes of subsection (a)(2)”.

(e) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations with respect to items properly included in, or excluded from, the adjusted basis of any listed property.