[Code of Federal Regulations] [Title 26, Volume 1] [Revised as of April 1, 2004] From the U.S. Government Printing Office via GPO Access [CITE: 26CFR1.280F-7] [Page 681-686] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) PART 1_INCOME TAXES--Table of Contents Sec. 1.280F-7 Property leased after December 31, 1986. (a) Inclusions in income of lessees of passenger automobiles leased after December 31, 1986--(1) In general. If a taxpayer [[Page 682]] leases a passenger automobile after December 31, 1986, the taxpayer must include in gross income an inclusion amount determined under this paragraph (a), for each taxable year during which the taxpayer leases the automobile. This paragraph (a) applies only to passenger automobiles for which the taxpayer's lease term begins after December 31, 1986. See Sec. Sec. 1.280F-5T(d) and 1.280F-5T(e) for rules on determining inclusion amounts for passenger automobiles for which the taxpayer's lease term begins before January 1, 1987. See Sec. 1.280F-5T(h)(2) for the definition of fair market value. (2) Inclusion Amount. For any passenger automobile leased after December 31, 1986, the inclusion amount for each taxable year during which the automobile is leased is determined as follows: (i) For the appropriate range of fair market values in the applicable table, select the dollar amount from the column for the taxable year in which the automobile is used under the lease (but for the last taxable year during any lease that does not begin and end in the same taxable year, use the dollar amount for the preceding taxable year). (ii) Prorate the dollar amount for the number of days of the lease term included in the taxable year. (iii) Multiply the prorated dollar amount by the business/investment use (as defined in Sec. 1.280F-6T(d)(3)(i)) for the taxable year. (iv) The following table is the applicable table in the case of a passenger automobile leased after December 31, 1986, and before January 1, 1989: Dollar Amounts for Automobiles With a Lease Term Beginning in Calendar Year 1987 or 1988 ---------------------------------------------------------------------------------------------------------------- Fair market Taxable year during lease value of --------------------------------------------------------------------------------- automobile 1st 2nd 3rd 4th 5 and later ---------------------------------------------------------------------------------------------------------------- Over Not over $12,800 $13,100 $2 $5 $7 $8 $9 13,100 13,400 6 14 20 24 28 13,400 13,700 10 23 34 41 47 13,700 14,000 15 32 47 57 65 14,000 14,300 19 41 61 73 84 14,300 14,600 23 50 74 89 103 14,600 14,900 27 59 88 105 122 14,900 15,200 31 68 101 122 140 15,200 15,500 35 77 115 138 159 15,500 15,800 40 87 128 154 178 15,800 16,100 44 96 142 170 196 16,100 16,400 48 105 155 186 215 16,400 16,700 52 114 169 203 234 16,700 17,000 56 123 182 219 253 17,000 17,500 62 135 200 240 277 17,500 18,000 69 150 223 267 309 18,000 18,500 76 166 246 294 340 18,500 19,000 83 181 268 321 371 19,000 19,500 90 196 291 348 402 19,500 20,000 97 211 313 375 433 20,000 20,500 104 226 336 402 465 20,500 21,000 111 242 358 429 496 21,000 21,500 117 257 381 456 527 21,500 22,000 124 272 403 483 558 22,000 23,000 135 295 437 524 605 23,000 24,000 149 325 482 578 667 24,000 25,000 163 356 527 632 729 25,000 26,000 177 386 572 686 792 26,000 27,000 190 416 617 740 854 27,000 28,000 204 447 662 794 917 28,000 29,000 218 477 707 848 979 29,000 30,000 232 507 752 902 1,041 30,000 31,000 246 538 797 956 1,104 31,000 32,000 260 568 842 1,010 1,166 32,000 33,000 274 599 887 1,064 1,228 33,000 34,000 288 629 933 1,118 1,291 34,000 35,000 302 659 978 1,172 1,353 35,000 36,000 316 690 1,023 1,226 1,415 36,000 37,000 329 720 1,068 1,280 1,478 [[Page 683]] 37,000 38,000 343 751 1,113 1,334 1,540 38,000 39,000 357 781 1,158 1,388 1,602 39,000 40,000 371 811 1,203 1,442 1,665 40,000 41,000 385 842 1,248 1,496 1,727 41,000 42,000 399 872 1,293 1,550 1,789 42,000 43,000 413 902 1,338 1,604 1,852 43,000 44,000 427 933 1,383 1,658 1,914 44,000 45,000 441 963 1,428 1,712 1,976 45,000 46,000 455 994 1,473 1,766 2,039 46,000 47,000 468 1,024 1,518 1,820 2,101 47,000 48,000 482 1,054 1,563 1,874 2,164 48,000 49,000 496 1,085 1,608 1,928 2,226 49,000 50,000 510 1,115 1,653 1,982 2,288 50,000 51,000 524 1,146 1,698 2,036 2,351 51,000 52,000 538 1,176 1,743 2,090 2,413 52,000 53,000 552 1,206 1,788 2,144 2,475 53,000 54,000 566 1,237 1,834 2,198 2,538 54,000 55,000 580 1,267 1,879 2,252 2,600 55,000 56,000 594 1,297 1,924 2,306 2,662 56,000 57,000 607 1,328 1,969 2,360 2,725 57,000 58,000 621 1,358 2,014 2,414 2,787 58,000 59,000 635 1,389 2,059 2,468 2,849 59,000 60,000 649 1,419 2,104 2,522 2,912 60,000 62,000 670 1,465 2,171 2,603 3,005 62,000 64,000 698 1,525 2,262 2,711 3,130 64,000 66,000 726 1,586 2,352 2,819 3,255 66,000 68,000 753 1,647 2,442 2,927 3,379 68,000 70,000 781 1,708 2,532 3,035 3,504 70,000 72,000 809 1,768 2,622 3,143 3,629 72,000 74,000 837 1,829 2,712 3,251 3,753 74,000 76,000 865 1,890 2,802 3,359 3,878 76,000 78,000 892 1,951 2,892 3,468 4,003 78,000 80,000 920 2,012 2,982 3,576 4,128 80,000 85,000 969 2,118 3,140 3,765 4,346 85,000 90,000 1,038 2,270 3,365 4,035 4,658 90,000 95,000 1,108 2,422 3,590 4,305 4,969 95,000 100,000 1,177 2,574 3,816 4,575 5,281 100,000 110,000 1,282 2,802 4,154 4,980 5,749 110,000 120,000 1,421 3,105 4,604 5,520 6,372 120,000 130,000 1,560 3,409 5,055 6,060 6,996 130,000 140,000 1,699 3,713 5,505 6,600 7,619 140,000 150,000 1,838 4,017 5,956 7,140 8,243 150,000 160,000 1,977 4,321 6,406 7,680 8,866 160,000 170,000 2,116 4,625 6,857 8,221 9,490 170,000 180,000 2,255 4,929 7,307 8,761 10,113 180,000 190,000 2,394 5,232 7,758 9,301 10,737 190,000 200,000 2,533 5,536 8,208 9,841 11,360 ---------------------------------------------------------------------------------------------------------------- (v) The applicable table in the case of a passenger automobile first leased after December 31, 1988, will be contained in a revenue ruling or revenue procedure published in the Internal Revenue Bulletin. (3) Example. The following example illustrates the application of this paragraph (a): Example. On April 1, 1987, A, a calendar year taxpayer, leases and places in service a passenger automobile with a fair market value of $31,500. The lease is to be for a period of three years. During taxable years 1987 and 1988, A uses the automobile exclusively in a trade or business. During 1989 and 1990, A's business/investment use is 45 percent. The appropriate dollar amounts from the table in paragraph (a)(2)(iv) of this section are $260 for 1987 (first taxable year during the lease), $568 for 1988 (second taxable year during the lease), $842 for 1989 (third taxable year during the lease), and $842 for 1990. Since 1990 is the last taxable year during the lease, the dollar amount for the preceding year (the third year) is used, rather than the dollar amount for the fourth year. For taxable years 1987 through 1990, A's inclusion amounts are determined as follows: [[Page 684]] ---------------------------------------------------------------------------------------------------------------- Business Tax year Dollar Proration use Inclusion amount (percent) amount ---------------------------------------------------------------------------------------------------------------- 1987........................................................ $260 275/365 100 $196 1988........................................................ 568 366/366 100 568 1989........................................................ 842 365/365 45 379 1990........................................................ 842 90/365 45 93 ---------------------------------------------------------------------------------------------------------------- (b) Inclusions in income of lessees of listed property (other than passenger automobiles) leased after December 31, 1986--(1) In general. If listed property other than a passenger automobile is not used predominantly in a qualified business use in any taxable year in which such property is leased, the lessee must add an inclusion amount to gross income in the first taxable year in which such property is not so predominantly used (and only in that year). This year is the first taxable year in which the business use percentage (as defined in Sec. 1.280F-6T(d)(1)) of the property is 50 percent or less. This inclusion amount is determined under this paragraph (b) for property for which the taxpayer's lease term begins after December 31, 1986 (and under Sec. 1.280F-5T(f) for property for which the taxpayer's lease term begins before January 1, 1987). See also Sec. 1.280F-5T(g). (2) Inclusion amount. The inclusion amount for any listed property (other than a passenger automobile) leased after December 31, 1986, is the sum of the amounts determined under subdivisions (i) and (ii) of this subparagraph (2). (i) The amount determined under this subdivision (i) is the product of the following amounts: (A) The fair market value (as defined in Sec. 1.280F-5T(h)(2)) of the property, (B) The business/investment use (as defined in Sec. 1.280F- 6T(d)(3)(i)) for the first taxable year in which the business use percentage (as defined in Sec. 1.280F-6T(d)(1)) is 50 percent or less, and (C) The applicable percentage from the following table: [[Page 685]] ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ First taxable year during lease in which business use percentage is 50% or less --------------------------------------------------------------------------------------------------------------------------------- Type of property 12 and 1 2 3 4 5 6 7 8 9 10 11 Later ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Property with a recovery period of less than 7 years under the 2.1 -7.2 -19.8 -20.1 -12.4 -12.4 -12.4 -12.4 -12.4 -12.4 -12.4 -12.4 alternative depreciation system (such as computers, trucks and airplanes)............................................... Property with a 7- to 10-year recovery period under the 3.9 -3.8 -17.7 -25.1 -27.8 -27.2 -27.1 -27.6 -23.7 -14.7 -14.7 -14.7 alternative depreciation system (such as recreation property) Property with a recovery period of more than 10 years under 6.6 -1.6 -16.9 -25.6 -29.9 -31.1 -32.8 -35.1 -33.3 -26.7 -19.7 -12.2 the alternative depreciation system (such as certain property with no class life).......................................... ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ [[Page 686]] (ii) The amount determined under this subdivision (ii) is the product of the following amounts: (A) The fair market value of the property, (B) The average of the business/investment use for all taxable years (in which such property is leased) that precede the first taxable year in which the business use percentage is 50 percent or less, and (C) The applicable percentage from the following table: ---------------------------------------------------------------------------------------------------------------- First taxable year during lease in which business use percentage is 50% or less ----------------------------------------------------------------------------------- Type of property 12 1 2 3 4 5 6 7 8 9 10 11 and Later ---------------------------------------------------------------------------------------------------------------- Property with a recovery 0.0 10.0 22.0 21.2 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 period of less than 7 years under the alternative depreciation system (Such as computers, trucks and airplanes)................. Property with a 7- to 10- 0.0 9.3 23.8 31.3 33.8 32.7 31.6 30.5 25.0 15.0 15.0 15.0 year recovery period under the alternative depreciation system (such as recreation property).... Property with a recovery 0.0 10.1 26.3 35.4 39.6 40.2 40.8 41.4 37.5 29.2 20.8 12.5 period of more than 10 years under the alternative depreciation system (such as certain property with no class life)................ ---------------------------------------------------------------------------------------------------------------- (3) Example. The following example illustrates the application of this paragraph (b): Example. On February 1, 1987, B, a calendar year taxpayer, leases and places in service a computer with a fair market value of $3,000. The lease is to be for a period of two years. B's qualified business use of the property, which is the only business/investment use, is 80 percent in taxable year 1987, 40 percent in taxable year 1988, and 35 percent in taxable year 1989. B must add an inclusion amount to gross income for taxable year 1988, the first taxable year in which B does not use the computer predominantly for business (i.e., the first taxable year in which B's business use percentage is 50 percent or less). Since 1988 is the second taxable year during the lease, and since the computer has a 5-year recovery period under the General and Alternative Depreciation Systems, the applicable percentage from the table in subdivision (i) of paragraph (b)(2) is -7.2%, and the applicable percentage from the table in subdivision (ii) is 10%. B's inclusion amount is $154, which is the sum of the amounts determined under subdivisions (i) and (ii) of subparagraph (b)(2) of this paragraph. The amount determined under subdivision (i) is -$86 [$3,000 x 40% x (-7.2%)], and the amount determined under subdivision (ii) is $240 [$3,000 x 80% x 10%]. [T.D. 8218, 53 FR 29881, Aug. 9, 1988; 53 FR 32821, Aug. 26, 1988, as amended by T.D. 8298, 55 FR 13370, Apr. 12, 1990; Redesignated and amended at T.D. 8473, 58 FR 19060, Apr. 12, 1993]