Vehicle Capital Cost
Vehicle capital cost is the amount of money that a car costs when it is new. Capital cost is used to calculate fixed reimbursements using vehicle profiles and to measure vehicle cost compliance on FAVR programs.
On FAVR, reimbursements are based on the costs associated with driving a standardized car called a vehicle profile. A vehicle profile can be a specific make and model of car, or a blend that represents average costs across a category. One of the most important features of a vehicle profile is its capital cost. Since more expensive vehicles cost more to own, vehicle profiles with higher capital costs lead to higher monthly reimbursements. (For details on how this is calculated see: depreciation.)
The IRS sets a cap on how expensive a vehicle profile can be on a FAVR program. This is called the capital cost limit. As of 2023, the current capital cost limit is $60,800.
Vehicle capital cost is also used to determine whether individual FAVR drivers are in vehicle cost compliance. Vehicle cost compliance is determined by comparing the capital cost of a driver’s personal vehicle to the capital cost of their assigned vehicle profile.
To be in vehicle cost compliance, a driver’s personal vehicle must have cost, when new, at least 90% of their vehicle profile’s capital cost. If a driver’s car costs less than this 90% threshold, they are out of cost compliance and their FAVR reimbursement will be tested for tax. Depending on the result of this test, a portion of their FAVR reimbursement may be assessed as taxable income.
Drivers enter the capital cost of their personal vehicle when they complete their annual IRS vehicle declaration.
Read more about vehicle profiles and learn about how these work within FAVR reimbursement programs. Or, learn more about tax rules on FAVR programs, including more details about vehicle cost compliance.
To learn about how a vehicle reimbursement program could be a fit with your company, consider speaking with a Cardata expert.