Final answer:
It is true that there are significant limits on the depreciation of luxury automobiles. The IRS has set maximum annual depreciation deductions for these types of vehicles to reflect their actual economic depreciation and prevent excessive tax benefits. Option A is correct.
Step-by-step explanation:
The statement that significant limits are placed on the depreciation of luxury automobiles is true. Under the U.S. tax code, there are specific depreciation limits for passenger automobiles. This includes what are known as luxury automobiles, which are vehicles priced above a certain threshold.
The IRS imposes these limits to control the amount of depreciation that can be claimed for such vehicles and to ensure that the depreciation deductions are in line with the actual economic depreciation and not just a means to generate significant tax deductions.
When it comes to luxury automobiles, the tax code stipulates set maximum amounts that can be depreciated each year. These amounts are adjusted periodically for inflation.
The limits are lower than the depreciation that could be claimed under the Modified Accelerated Cost Recovery System (MACRS) if there were no luxury automobile limitations. Therefore, when businesses purchase vehicles that are classified as luxury automobiles, they must adhere to these special depreciation limits.