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

(a) Limitation on amount of depreciation for luxury automobiles (1) Depreciation (A) Limitation — There's a dollar cap on how much depreciation you can deduct each year for a passenger car: $10,000 for the 1st year you own it, $16,000 for the 2nd year, $9,600 for the 3rd year, and $5,760 for every year after that. (B) Disallowed deductions allowed for years after recovery period — After the car's normal depreciation period ends, whatever basis you haven't yet deducted ("unrecovered basis") becomes a deductible expense the next year. If that amount is more than $5,760, the extra rolls forward to the year after that. Any year's amount under this rule still can't exceed $5,760. And you only get this deduction if the property would still qualify for a regular depreciation deduction that year; when you do get it, the tax code treats it exactly like a normal depreciation deduction. (2) Coordination — These caps in subsection (a) are applied first, before any reduction from personal-use rules in subsection (b), and before any other reduction to depreciation caused by non-qualifying use. (b) Limitation where business use of listed property not greater than 50 percent (1) Depreciation — If "listed property" (see subsection (d)) isn't used more than half the time for business that year, you must use the slower alternative depreciation system for that year and every year after, instead of the regular one. (2) Recapture — If a car was mostly used for business the year it was put into service, but later drops below 50% business use, you must add the "excess depreciation" — the extra amount you deducted versus what alternative depreciation would have allowed — into your income for that later year, and you must switch to the alternative depreciation system going forward. (3) Property counts as "predominantly used in a qualified business use" for a year if the business-use percentage that year is over 50%. (c) Treatment of leases (1) If you're in the business of leasing this kind of property to others, these limits don't apply to you as the lessor. (2) If you're the lessee renting the property for 30 days or more, you can only deduct an "allowable percentage" of your lease payments. (3) The Treasury sets tables for that allowable percentage, designed to roughly match the restrictions in subsections (a) and (b). (4) The lease term is measured the same way section 168(i)(3)(A) measures it elsewhere in the tax code. (5) Rules like the recapture rule in subsection (b)(3) apply to lessees too, under regulations. (d) Definitions and special rules (1) Any deduction you take under section 179 (the expensing election) for listed property is still subject to these same limits. (2) For figuring out later years' depreciation, if you use listed property less than 100% for business (or income production) in a year, the law treats all of that year's use as business use — this only affects how future deductions are calculated. (3) An employee's use of listed property doesn't count as business use for depreciation purposes unless it's required by, and for the convenience of, the employer. (4) "Listed property" means: any passenger automobile; any other property used for transportation; property typically used for entertainment, recreation, or amusement; or anything else the Treasury names by regulation. Exception: transportation property (other than passenger cars) doesn't count as listed property if it's used almost entirely in a business of transporting people or property for hire, unless regulations say otherwise. (5) "Passenger automobile" means a 4-wheeled vehicle built mainly for use on public roads and weighing 6,000 pounds or less unloaded (for trucks and vans, loaded weight is used instead). It does NOT include: ambulances, hearses, or ambulance-hearse combos used directly in a business; vehicles used directly in a for-hire transportation business; and, under regulations, certain trucks or vans. (6) "Business use percentage" is the share of a year's use that counts as "qualified business use," which normally means any use in the taxpayer's trade or business — except it does NOT include: leasing the property to, or letting it be used as pay for services by, a "5-percent owner" or someone related to them, unless (for non-owners) the value is included in that person's taxable income and properly withheld on. This owner exception doesn't apply to aircraft if at least 25% of the aircraft's use that year is otherwise-qualified business use. A "5-percent owner" and "related person" are defined by cross-reference to other tax code sections (416(i)(1)(B)(i) and 267(b)). (7) The dollar limits in subsection (a) go up each year for cars placed in service after 2018, based on an inflation adjustment tied to the Chained Consumer Price Index for autos, rounded to the nearest $100. (8) "Unrecovered basis" means the adjusted basis of the car left over after applying subsection (a), assuming all its use during the recovery period was business use. (9) If more than one taxpayer owns interests in the same passenger automobile, they're all treated as one taxpayer for these limits, and the dollar caps are split among them based on their ownership shares. (10) If you acquire property in certain tax-free ("nonrecognition") transactions, subsection (a) treats it as one single item placed in service in the year it was actually placed in service after you got it. (e) Regulations The Treasury may issue whatever regulations are needed to carry out this section, including rules on what counts as part of the adjusted basis of listed property.