I placed a $100,000 passenger automobile in service in 2023 and claimed 80% federal bonus depreciation, which exceeded the IRC Section 280F annual limit -- did I calculate the Illinois addition and subtraction modifications correctly?

Plain-English summary

A taxpayer placed a $100,000 passenger automobile in service in 2023 and, using MACRS with a half-year convention, claimed 80% federal bonus depreciation on it. Passenger automobiles are subject to a special federal cap: IRC Section 280F limits how much total depreciation (including bonus depreciation) can be claimed in each year of the vehicle's life, with the limit amounts adjusted annually for inflation (Rev. Proc. 2023-14 sets the 2023 figures). The taxpayer's bonus depreciation, calculated apart from the 280F limit, would have exceeded that cap, and the taxpayer asked the Department to check whether a worked-out example applying Illinois's bonus-depreciation addition and subtraction modifications was done correctly.

How the Illinois mechanics work. Illinois requires an ADDITION back of federal bonus depreciation claimed under IRC Section 168(k) (IITA Section 203(b)(2)(E-10)), then allows an offsetting SUBTRACTION over time for the regular depreciation the taxpayer would otherwise have claimed (IITA Section 203(b)(2)(T)). The subtraction formula depends on what percentage of bonus depreciation was taken -- for the 80% bonus rate at issue here, the multiplier under Section 203(b)(2)(T)(3)(iv) works out to 4 (that is, 100 × 0.80 ÷ (100 × (1 − 0.80))). When the property is eventually sold, transferred, abandoned, or otherwise disposed of, IITA Section 203(b)(2)(E-11) requires adding back the total of all subtractions claimed over the years, as a final true-up.

Applying this to the taxpayer's numbers. Because federal bonus depreciation on this automobile exceeded the IRC Section 280F dollar limit ($20,200 for a car placed in service in 2023) in the very first year, no Illinois subtraction modification was available for 2023 -- the entire regular-depreciation "room" was already used up by the capped bonus amount. The taxpayer must recognize a $20,200 ADDITION for 2023, matching the Section 280F limit itself (not the full uncapped 80% bonus amount, since the federal deduction is itself capped at that limit). In later years, the subtraction is calculated by applying the 4x multiplier to whatever federal depreciation is actually claimed on the vehicle in that year.

What this means for you

Businesses depreciating passenger automobiles with heavy bonus depreciation

The interaction between the IRC Section 280F annual dollar cap and Illinois's bonus-depreciation addition/subtraction modifications is not the same as for property without a 280F limit -- when the 280F cap is lower than what bonus depreciation would otherwise allow, your Illinois addition is capped at the same 280F dollar amount, and your subtraction math depends on the bonus percentage you elected.

Accountants and tax preparers computing Form IL-4562 entries

The subtraction multiplier isn't a flat percentage in every case -- IITA Section 203(b)(2)(T)(3) sets specific multipliers for 30%, 50%, and 100% bonus rates and a general formula, 100(bonus%) ÷ 100(1-bonus%), for any other percentage (like the 80% rate used here, which works out to a 4x multiplier).

Anyone tracking the aggregate subtraction limit

The total subtraction claimed under IITA Section 203(b)(2)(T) across all years for one piece of property can never exceed the total bonus depreciation deduction taken on that property federally -- and when the property is later disposed of, all subtractions previously claimed get added back under IITA Section 203(b)(2)(E-11).

Common questions

Q: How much can I add back to Illinois income for bonus depreciation on a 280F-limited passenger automobile?
A: The addition is tied to what you actually claimed federally -- if the IRC Section 280F limit caps your bonus depreciation below what an uncapped bonus percentage would allow, your addition matches the capped federal amount, not a hypothetical uncapped figure.

Q: What multiplier applies to the Illinois subtraction modification for 80% bonus depreciation?
A: Under IITA Section 203(b)(2)(T)(3)(iv)'s general formula (100 × bonus% ÷ (100 × (1 − bonus%))), an 80% bonus rate produces a multiplier of 4.

Q: What happens if the bonus depreciation used up the entire IRC 280F limit in the placed-in-service year?
A: No Illinois subtraction is available that year -- the subtraction only becomes available in later years, applied to whatever federal depreciation is claimed then.

Q: What happens when the vehicle is eventually sold or disposed of?
A: IITA Section 203(b)(2)(E-11) requires adding back the total of every subtraction claimed under Section 203(b)(2)(T) over all prior years.

Citations and references

Statutes and federal authority:

• IRC Section 280F(a), (d)(7)(A) (annual depreciation limits for passenger automobiles, inflation-adjusted)
• IRC Section 168(k)(1), (6)(A)(ii) (federal bonus depreciation; 80% applicable percentage, property placed in service after 9/27/2017 and before 1/1/2024)
• 35 ILCS 5/203(b)(2)(E-10) (addition modification for federal bonus depreciation, corporations)
• 35 ILCS 5/203(b)(2)(T) (subtraction modification for regular depreciation in place of bonus depreciation)
• 35 ILCS 5/203(b)(2)(E-11) (true-up addition modification on disposal of the property)
• Rev. Proc. 2023-14, 2023-6 IRB 466 (IRC Section 280F limits for autos placed in service in 2023)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2024/IT24-0010-GIL.pdf

Original ruling text

IT 24-0010-GIL 11/6/2024 MODIFICATIONS – BONUS DEPRECIATION
General explanation of bonus depreciation modifications for passenger automobiles
subject to IRC Section 280F limits. (This is a GIL.)
November 6, 2024
NAME
ADDRESS
Re:

Illinois income tax – Form IL-4562 and Automobiles Subject to IRC 280F
Limitation

Dear NAME:
This is in response to your letter received by the Department on September 30, 2024, in
which you request information regarding automobiles subject to the IRC Section 280F
limitation and the related Illinois bonus depreciation adjustments on Form IL-4562. The
nature of your request and the information you have provided require that we respond
with a General Information Letter, which is designed to provide general information, is
not a statement of Department policy, and is not binding on the Department. See 2 Ill.
Adm. Code Section 1200.120(b) and (c), which may be found on the Department’s
website at https://tax.illinois.gov.
Your letter states as follows:
I have a question regarding the IL-4562 and autos subject to 280F limitations.
Could you please confirm if the following example is correct?
An auto placed in service in 2023 - MACRS Calc, Half Year Convention, cost of
100,000.
Federal
Basis

280F Fed Claimed
Bonu Regular
s
5.00 80000
0
4.50
0
31920
3.50
24120
2.50
19440
1.50
16656
0.50
1.00
1.00
1.00

Rmlife
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032

100000 0.2
79800 40%
60300
48600
41640
34680
27720
20760
13800
6840

20200
19500
11700
6960
6960
6960
6960
6960
6960

20200
19500
11700
6960
6960
6960
6960
6960
6960
6840

100000
Illinois Adjustments Addback
Fed

Addback

Subtraction (*4)

Final Yr

Net
Claimed
Adjustments
20200
-20200
2023
2024
19500
2025
11700
2026
6960
6960
2027
2028
6960
2029
6960
2030
6960
2031
6960
-319200
2032
6840

Subtraction
0
78000
46800
27840
27840
27840
27840
27840
27840
27360
319200

20200

-20200
78000
46800
27840
27840
27840
27840
27840
27840
-271640
0

If this is not correct, could you please direct me where I errored?
Thank you so much for your time!
RULING
Section 280F(a) of the Internal Revenue Code (“IRC”) limits the dollar amount of the
depreciation deduction for the year a taxpayer places a passenger automobile in service
and for each succeeding year. As provided in IRC Section 280F(d)(7)(A), for any
passenger automobile placed in service after 2018, the Internal Revenue Service
(“IRS”) increases the allowable depreciation deduction amounts by the automobile price
inflation adjustment amount. Rev. Proc. 2023-14, 2023-6 IRB 466, February 6, 2023,
provides the IRC Section 280F limits for passenger automobiles placed in service by the
taxpayer during calendar year 2023.
For qualified property, IRC Section 168(k)(1) provides the depreciation deduction
provided by IRC Section 167(a) for the taxable year in which such property is placed in
service includes an allowance equal to the “applicable percentage” of the adjusted basis
of the qualified property. Pursuant to IRC Section 168(k)(6)(A)(ii), the applicable
percentage for qualified property acquired after September 27, 2017, and placed in
service after December 31, 2022, and before January 1, 2024, is 80 percent.
In many cases, this additional first year depreciation deduction provided by IRC Section
168(k), commonly referred to as bonus depreciation, will be greater than the yearly IRC
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Section 280F limits. In those cases, during the first year the property was acquired and
placed in service and in years in which bonus depreciation is allowed federally, a
taxpayer is allowed bonus depreciation equal to the limit and regular depreciation of
zero.
Section 203(b)(2)(E-10) of the Illinois Income Tax Act (“IITA”; 35 ILCS 5/203) requires a
corporation, including a Subchapter S corporation, to add back to their federal taxable
income:
For taxable years 2001 and thereafter, an amount equal to the bonus
depreciation deduction taken on the taxpayer’s federal income tax return for the
taxable year under subsection (k) of Section 168 of the Internal Revenue Code.
A corporation, including a Subchapter S corporation, is permitted a subtraction
modification of the percentage of regular depreciation on that asset in both the year the
taxpayer claimed the bonus depreciation and in subsequent years, as provided in IITA
Section 203(b)(2)(T):
For taxable years 2001 and thereafter, for the taxable year in which the bonus
depreciation deduction is taken on the taxpayer’s federal income tax return under
subsection (k) of Section 168 of the Internal Revenue Code and for each
applicable taxable year thereafter, an amount equal to “x”, where:
(1) “y” equals the amount of the depreciation deduction taken for the
taxable year on the taxpayer’s federal income tax return on property for
which the bonus depreciation deduction was taken in any year under
subsection (k) of Section 168 of the Internal Revenue Code, but not
including the bonus depreciation deduction;
(2) for taxable years ending on or before December 31, 2005, “x” equals
“y” multiplied by 30 and then divided by 70 (or “y” multiplied by 0.429); and
(3) for taxable years ending after December 31, 2005:
(i) for property on which a bonus depreciation deduction of 30% of
the adjusted basis was taken, “x” equals “y” multiplied by 30 and
then divided by 70 (or “y” multiplied by 0.429);
(ii) for property on which a bonus depreciation deduction of 50% of
the adjusted basis was taken, “x” equals “y” multiplied by 1.0;
(iii) for property on which a bonus depreciation deduction of 100%
of the adjusted basis was taken in a taxable year ending on or after
December 31, 2021, “x” equals the depreciation deduction that
would be allowed on that property if the taxpayer had made the

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election under Section 168(k)(7) of the Internal Revenue Code to
not claim bonus depreciation on that property; and
(iv) for property on which a bonus depreciation deduction of a
percentage other than 30%, 50% or 100% of the adjusted basis
was taken in a taxable year ending on or after December 31, 2021,
“x” equals “y” multiplied by 100 times the percentage bonus
depreciation on the property (that is,100(bonus%)) and then divided
by 100 times 1 minus the percentage bonus depreciation on the
property (that is, 100(1-bonus%)).
The aggregate amount deducted pursuant to IITA Section 203(b)(2)(T) in all taxable
years for any one piece of property may not exceed the amount of the bonus
depreciation deduction taken on that property on the taxpayer’s federal income tax
return.
If a taxpayer sells, transfers, abandons, or otherwise disposes of property for which the
taxpayer was required in any taxable year to make an addition modification under IITA
Section 203(b)(2)(E-10), then IITA Section 203(b)(2)(E-11) requires a corporation,
including a Subchapter S corporation, to add back to their federal taxable income an
amount equal to the aggregate amount of all deductions taken in all taxable years under
IITA Section 203(b)(2)(T).
Substantially identical provisions are included in IITA Section 203 for individuals, trusts
and estates, and partnerships.
The example you provided is for an automobile placed in service in 2023, which would
be subject to a federal bonus depreciation applicable percentage of 80% and IRC
Section 280F limits as provided in Table 1 of Rev. Proc. 2023-14. You indicate the
example applies MACRS calculation with a half-year convention. The example appears
to calculate the depreciation deduction without using the percentage tables in IRS
Publication 946, but rather applies the declining balance method and half-year
convention. An 80% federal bonus depreciation was claimed, and the amount
exceeded the IRC Section 280F limit of $20,200, so no Illinois subtraction modification
is allowed for the 2023 tax year. Applying the formula in IITA Section
203(b)(2)(T)(3)(iv), the subtraction modification for succeeding years would be equal to
the federal depreciation deduction multiplied by 4 [((100)(.80)) / (100(1-.80))].
Pursuant to IITA Section 203(b)(2)(E-10), the addition modification for the 2023 tax year
for a corporation would be equal to the federal bonus depreciation deduction taken on
the taxpayer’s federal income tax return. Therefore, the taxpayer must recognize a
$20,200 addition modification equal to the IRC Section 280F limit for the 2023 tax year.
Pursuant to IITA Section 203(b)(2)(E-11), the addition modification for the last year of
regular depreciation would equal the total amount of all Illinois depreciation subtractions
claimed in all taxable years.

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Form IL-4562, Special Depreciation, and the related instructions provide specific
guidance for taxpayers who file an Illinois income or replacement tax return and report
special depreciation on their federal Form 4562. In addition, the Form IL-4562
instructions include a special note on how to compute Illinois bonus depreciation for
passenger automobiles subject to the IRC Section 280F limits. Previous years forms
and instructions are currently available on the Department’s website, and the 2024
version will be publicly available on the website in early 2025.
As stated above, this is a General Information Letter. A General Information Letter does
not constitute a statement of policy that applies, interprets or prescribes the tax laws,
and it is not binding on the Department.
I hope this information is helpful. If you require additional information, please visit our
website at https://tax.illinois.gov or contact the Department’s Taxpayer Assistance
Division at (217) 782-3336.
Sincerely,
Jennifer Uhles
Associate Counsel (Income Tax)

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