Luxury Automobile Limitations

Categories: Marketing

Insurance rates are high. It's hard to fit a child's car seat in the back. Some people joke that you're just trying to compensate for other shortcomings. All examples of luxury automobile limitations.

But we're not interested in those other things. We're here to talk about a very specific situation: depreciation accounting.

In accounting, the luxury automobile limitation relates to a cap on the amount of depreciation you can take when you use one of these cars for business.

The IRS caps the amount of depreciation that businesses can take for passenger vehicles. Since depreciation gets figured as a percentage of an asset's price, this effectively limits the depreciation for high-cost cars.

So if you drive around in a Rolls-Royce Phantom for your sales job (sticker price starting at $450,000), you can still take just $10,000 in depreciation for the first year.

Find other enlightening terms in Shmoop Finance Genius Bar(f)