Pension & Benefits News Final regulations update fleet-average and vehicle cents-per-mile base valuation amounts
News
Wednesday, February 12, 2020

Final regulations update fleet-average and vehicle cents-per-mile base valuation amounts

By Pension and Benefits Editorial Staff

Final regulations increase a vehicle's maximum value for eligibility to use the fleet-average valuation rule or the vehicle cents-per-mile valuation rule. The regulations provide transition rules for certain employers. The final regulations are effective on February 5, 2020.

TCJA increased maximum vehicle values. Before the Tax Cuts and Job Act (TCJA) (P.L. 115-97), the maximum base fair market value of a vehicle for use of the fleet-average valuation rule was $16,500, as adjusted annually for inflation ($21,100 for a passenger automobile and $23,300 for a truck or van in 2017). The pre-TCJA maximum base fair market value of a vehicle for use of the vehicle cents-per-mile valuation rule was $12,800, as adjusted annually for inflation ($15,900 for a passenger automobile and $17,800 for a truck or van in 2017).

The TCJA increased these amounts to $50,000, adjusted for inflation. The IRS, therefore, issued Notice 2019-8 and Notice 2019-34 providing interim guidance, as well as proposed regulations, to reflect the increase. The final regulations update the fleet-average and vehicle cents-per-mile valuation rules to conform to the changes made by the TCJA.

Trucks and vans not separately valued. Before the TCJA, inflation adjustments were determined using the Consumer Price Index (CPI), which contained both a new car and a new truck component. Therefore, separate inflation adjustments were released for cars using the car component of the CPI, and for trucks and vans using the truck component.

Under the TCJA, the price inflation amount for automobiles (including trucks and vans) is calculated using both the CPI automobile component and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) automobile component. There is no separate C-CPI-U component for trucks and vans. As a result, the IRS will publish only one maximum value of a vehicle for use with the fleet-average and vehicle cents-per-mile valuation rules.

Transition rules. Consistent with Notice 2019-34 and the proposed regulations, the final regulations provide the following transition rules.

Fleet-average valuation rule. If an employer did not qualify to use the fleet-average valuation rule prior to January 1, 2018 because the automobile's fair market value exceeded the inflation-adjusted maximum value requirement for the year the automobile was first made available to the employee for personal use, the employer may adopt the fleet-average valuation rule for 2018 or 2019, provided the fair market value of the automobile does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.

Vehicle cents-per-mile valuation rule. An employer that did not qualify to adopt the vehicle cents-per-mile valuation rule for a vehicle first made available to an employee for personal use before calendar year 2018, may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year for the vehicle if:

  • the employer did not qualify to adopt the vehicle cents-per-mile valuation rule because the vehicle's fair market value exceeded the inflation-adjusted limitation for the year the vehicle was first used by the employee for personal use; and
  • the vehicle's fair market value does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.

Similarly, if the employer first used the commuting valuation rule, the employer may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year if:

  • the employer did not qualify to switch to the vehicle cents-per-mile valuation rule on the first day on which the commuting valuation rule was not used because the vehicle's fair market value exceeded the inflation-adjusted limitation for the year the commuting valuation rule was first not used; and
  • the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019.

An employer that adopts the vehicle cents-per-mile valuation rule must continue to use the rule for all subsequent years in which the vehicle qualifies for use of the rule, except that the employer may, for any year during which use of the vehicle qualifies for the commuting valuation rule use the commuting valuation rule for the vehicle.

SOURCE: 85 FR 6424, February 5, 2020.

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More