California Differences - Vehicle Expenses
California generally conforms to pre-TCJA Federal provisions related to vehicle expenses. However, there are a number of differences, particularly with the passage of the TCJA, including the following:
Bonus Depreciation
CA has not adopted the first year Bonus Depreciation. Since there is no bonus depreciation conformity, CA does not go along with the higher luxury auto limits for the years when the bonus depreciation applies. Since CA’s general conformity is based on the IRC as of January 1, 2015, and without legislation to change the conformity date, the increased luxury auto depreciation limits included in the TCJA do not apply for CA. Therefore, the CA depreciation limits for autos placed in service in 2022, 2023 and 2024 are:
Lease Inclusion Amounts
California also does not conform to the changes made by the TCJA to the auto lease inclusion amounts. For CA lease inclusion amounts, go to ftb.ca.gov and search for lease inclusion.
Vehicle Trade-In
California conformity has created a complicated issue for vehicle trade-ins. Read the following very carefully. California has only partially conformed to the TCJA change limiting Sec 1031 to real property. Therefore, most taxpayers who trade in a business-use vehicle must treat that transaction as a Sec 1031 exchange on their California returns.
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High-Income Taxpayers - CA conforms to the Federal treatment for high income taxpayers for exchanges completed after January 10, 2019. High income taxpayers are taxpayers with AGI of $500,000 or more ($250,000 for those filing single or married separate).
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All Others – Those who do not qualify as a high-income taxpayer who trade in a business-use vehicle must treat that transaction as a Sec 1031 exchange for CA purposes.
Caution
Where a trade-in is treated as a 1031 exchange in CA and not for Federal it creates a different basis for each.
Employee Business Expenses
Unlike the federal suspension of employee business expenses, CA continues to allow Tier 2 miscellaneous deductions, including employee business deductions such as employment-related use of a personal auto.