IRS Issues Annual Vehicle Depreciation and Lease Inclusion Amounts for 2026

(Parker Tax Publishing March 2026)

The IRS issued its annual guidance providing (1) tables of limitations on depreciation deductions for owners of passenger automobiles (which includes trucks and vans) first placed in service by the taxpayer during calendar year 2026; and (2) a table of amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2026. The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by Code Sec. 280F(d)(7) and include a $100 increase in the first tax year depreciation limitation deduction for passenger automobiles, to $20,300 from $20,200 in 2025. Rev. Proc. 2026-15.

Background

Code Sec. 280F(a) imposes dollar limitations on the depreciation deduction for the year a taxpayer places a passenger automobile (including trucks and vans) in service and for each succeeding year. These are referred to as the "luxury auto depreciation limitations." For passenger automobiles placed in service after 2018, Code Sec. 280F(d)(7) requires the IRS to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount that is determined using the automobile component of the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) published by the Department of Labor.

Code Sec. 168(k), as amended by the One Big Beautiful Bill Act (OBBBA) (Pub. L. 119-21), applies to property acquired and placed in service after January 19, 2025. Code Sec. 168(k)(1), as amended by the OBBBA, allows an additional first year depreciation deduction under Code Sec. 167(a) equal to 100 percent of the property's adjusted basis for the tax year in which qualified property, as defined in Code Sec. 168(k)(2), is placed in service.

Code Sec. 168(k), as in effect prior to amendment by the OBBBA (former Code Sec. 168(k)), applies to property acquired after September 27, 2017, and before January 20, 2025, which is placed in service before January 1, 2027. Former Code Sec. 168(k)(1) provides that the Code Sec. 168(k) additional first year depreciation deduction is equal to the applicable percentage of the property's adjusted basis. Pursuant to former Code Sec. 168(k)(6)(A), the applicable percentage is 100 percent for qualified property placed in service after September 27, 2017, and before January 1, 2023, and is phased down 20 percent each year thereafter for property placed in service through December 31, 2026. Accordingly, the applicable percentage for qualified property acquired after September 27, 2017, and before January 20, 2025, and placed in service during calendar year 2026 is 20 percent. For qualified property acquired and placed in service after September 27, 2017, Code Sec. 168(k)(2)(F)(i) increases the first-year depreciation allowed under Code Sec. 280F(a)(1)(A)(i) by $8,000.

The Code Sec. 168(k) additional first year depreciation deduction does not apply for 2026 if the taxpayer: (1) did not use the passenger automobile during 2026 more than 50 percent for business purposes; (2) elected out of the Code Sec. 168(k) additional first year depreciation deduction pursuant to Code Sec. 168(k)(7) for the class of property that includes passenger automobiles; (3) acquired a used passenger automobile and the acquisition of such property did not meet the acquisition requirements in Code Sec. 168(k)(2)(E) and Reg. Sec. 1.168(k)2(b)(3)(iii); or (4) acquired the passenger automobile before September 28, 2017.

Code Sec. 280F(c)(2) requires a reduction to the amount of deduction allowed to the lessee of a leased passenger automobile. Under Code Sec. 280F(c)(3), the reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under Reg. Sec. 1.280F-7(a), this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table provided by the IRS in published guidance.

Rev. Proc. 2026-15

Code Sec. 280F(d)(7)(B)(i) provides that the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the C-CPI-U automobile component for October of the preceding calendar year exceeds the automobile component of the CPI (as defined in Code Sec. 1(f)(4)) for October of 2017, multiplied by the amount determined under Code Sec. 1(f)(3)(B). The amount determined under Code Sec. 1(f)(3)(B) is the amount obtained by dividing the new vehicle component of the C-CPI-U for calendar year 2016 by the new vehicle component of the CPI for calendar year 2016, where the C-CPI-U and the CPI for calendar year 2016 means the average of such amounts as of the close of the 12-month period ending on August 31, 2016. Code Sec. 280F(d)(7)(B)(ii) defines the term "C-CPI-U automobile component" as the automobile component of the Chained Consumer Price Index for All Urban Consumers as described in Code Sec. 1(f)(6).

The product of the October 2017 CPI new vehicle component (144.868) and the amount determined under Code Sec. 1(f)(3)(B) (0.694370319) is 100.592. The new vehicle component of the C-CPI-U released in December 2025 was 124.199 for October 2025. The October 2025 C-CPI-U new vehicle component exceeded the product of the October 2017 CPI new vehicle component and the amount determined under Code Sec. 1(f)(3)(B) by 23.607 (124.199 - 100.592). The percentage by which the C-CPI-U new vehicle component for October 2025 exceeds the product of the new vehicle component of the CPI for October of 2017 and the amount determined under Code Sec. 1(f)(3)(B) is 23.468 percent (23.607/100.592 x 100 percent), the automobile price inflation adjustment for 2026 for passenger automobiles. The dollar limitations in Code Sec. 280F(a) are therefore multiplied by a factor of 0.23468, and the resulting increases, after rounding to the nearest $100, are added to the 2018 limitations to give the depreciation limitations applicable to passenger automobiles for calendar year 2026. This adjustment applies to all passenger automobiles that are first placed in service in calendar year 2026.

Tables 1 and 2 of Rev. Proc. 2026-15 provide depreciation limitations for passenger automobiles placed in service by the taxpayer during calendar year 2026. Table 1 provides depreciation limitations for passenger automobiles acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during calendar year 2026, for which the Code Sec. 168(k) additional first year depreciation deduction applies. The depreciation limitations in Table 1 apply regardless of whether the Code Sec. 168(k) additional first year depreciation deduction is allowed under former Code Sec. 168(k) or Code Sec. 168(k) as amended by the OBBBA. Table 2 provides depreciation limitations for passenger automobiles placed in service by the taxpayer during calendar year 2026 for which no Code Sec. 168(k) additional first year depreciation deduction applies. Table 3 of Rev. Proc. 2026-15 applies to lessees of passenger automobiles and shows income inclusion amounts for a range of fair market values for each tax year after the passenger automobile is first leased.

For a discussion of the depreciation limitation for passenger automobiles, see Parker Tax ¶94,910. For a discussion of income inclusion amounts on leased passenger automobiles, see Parker Tax ¶94,915.

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