Depreciation of a Vehicle in the FAVR plan
The IRS has determined that for automobiles that a person uses for business a payer may not provide a FAVR allowance for an automobile for which an employee has:..
- Claimed depreciation using a method other than straight-line for it's estimated useful life
- Claimed a §179 deduction
- Claimed the additional first year depreciation allowance under or example §168(k) or §168(n), or
- Used ACRS under former §168 or MACRS under current §168
If an employee uses actual costs for an owned automobile that has been covered with a FAVR allowance, the employee must use straight-line depreciation for the automobiles remaining estimated useful life
(Subject to the applicable depreciation deduction limitations under §280F).
The IRS has written a huge amount of information for details of this plan and some of the details might affect your business, so I suggest that if you are going to employ this plan take the time to read the details. They are available on Link text IRS bulletin 2010-51.
See .04 Depreciation on the IRS sheet 2010-51 on this subject for more info on the depreciation aspect of the plan.
Section 6 covers the FAVR plan and it has 8 sections:
- .01 In general
- .02 Computing a FAVR allowance.
- .03 FAVR allowance in lieu of fixed and variable costs
- .04 Depreciation (More than is on this page)
- .05 FAVR allowance limitations
- .06 Employee Reporting
- .07 Payer record keeping and reporting
- .08 Failure to meet section 6 requirements
It still will be a cost saving method if it all works out.