Depreciation Caps and the Lapsing Schedule

Last updated: 2026-07-09 Summary:

BIR RR 12-2012 caps the depreciation you can deduct on a land vehicle at a purchase price of ₱2,400,000 — anything above that yields no deductible depreciation.
eKapital treats the cap as a tax-disallowed memo only: book depreciation and every journal entry are unchanged. The cap is a permanent book–tax difference.
The memo flows into the Lapsing Schedule, so your fixed-asset roll-forward and your income-tax adjustment come from one place.

This guide explains a BIR rule and how eKapital surfaces it. It is not tax advice — confirm your position with your tax adviser.

The RR 12-2012 vehicle cap

Under Revenue Regulations No. 12-2012, a purchased land vehicle costing more than ₱2,400,000 has no deductible depreciation for income-tax purposes (there are also substantiation and one-vehicle-per-official conditions in the regulation). eKapital ships this as a default cap rule on every company:

Name: Default — Land Vehicle Cap (RR 12-2012)
Cap amount: ₱2,400,000
Treatment: Cliff
Effective: vehicles placed in service on or after 17 October 2012

You can view, edit, or add cap rules under the fixed-asset Depreciation Cap Rules (needs the manage-assets permission), and bind or exempt individual assets from the Tax — Depreciation Cap card when you register an asset.

Cliff vs Base Cap

A cap rule has one of two treatments, which decide how much of a capped asset’s depreciation is disallowed:

Cliff — when the asset’s cost exceeds the cap, the entire period’s book depreciation is disallowed, not just the excess. This is how RR 12-2012 works, which is why the seeded rule is a cliff.
Base Cap — only the portion of depreciation attributable to cost above the cap is disallowed (the excess is prorated against the gross cost). Use this for an internal-policy cap where you still deduct the depreciation up to the cap.

If the asset’s cost is at or below the cap, nothing is disallowed under either treatment.

It’s a memo, not a posting

This is the point to internalise: the cap changes nothing on your books.

Book depreciation is unchanged — the depreciation run posts the same expense and accumulated-depreciation entries whether or not a cap applies.
No journal entry is created for the disallowed amount.
eKapital records the disallowed figure as a memo (the “non-deductible depreciation”) for you to carry into the income-tax computation.

Because book depreciation continues over the asset’s life while the tax deduction is permanently smaller, this is a permanent difference between book and tax — not a timing difference that reverses.

Asset classification (NIRC §39)

Each asset carries a classification that reflects Section 39 of the Tax Code:

Ordinary Depreciable (the default) — property used in the trade or business; ordinary gains/losses on disposal.
Capital Asset — property outside the ordinary course under NIRC §39; different tax treatment on disposal.

Set this when you register the asset. It appears on the Asset Register and informs how a disposal is treated for tax.

The lapsing schedule ties it together

The BIR Lapsing Schedule is the roll-forward examiners expect: for each asset it rolls cost and accumulated depreciation from beginning to ending balances over the period, with a non-deductible-depreciation column carrying the cap memo. Because the book roll-forward and the tax memo are produced together, your fixed-asset movement and your income-tax adjustment reconcile to the same source. See Fixed asset reports for its columns, filters, and exports.

One related caution: for a vehicle capped under RR 12-2012, the input VAT attributable to the non-deductible portion may likewise be disallowed. Consult your tax adviser before claiming input VAT on a capped asset.