DEPRECIATION DEDUCTION LIMITS PROVIDED FOR AUTOS PLACED IN SERVICE IN 1992.

Rev. Proc. 92-43

SECTION 1. PURPOSE

This revenue procedure provides owners and lessees of passenger automobiles with tables detailing the limitations on depreciation deductions for automobiles first placed in service during calendar year 1992 and the amounts to be included in income for automobiles first leased during calendar year 1992. Each table reflects the automobile price inflation adjustments required by section 280F(d)(7) of the Internal Revenue Code.

SEC. 2. BACKGROUND

For owners of automobiles, section 280F(a) of the Code imposes dollar limitations on the depreciation deduction for both the year that the automobile is placed in service and each succeeding year. Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after calendar year 1988.

For leased automobiles, section 280F(c) of the Code requires a reduction in the deduction allowed to the lessee of the automobile. The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of automobiles. Under section 1.280F-7T(a) of the temporary Income Tax Regulations, this reduction requires the lessees to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. The table shows inclusion amounts for a range of fair market values for each tax year after the automobile is first leased.

SEC. 3. SCOPE AND OBJECTIVE

01. The limitations on depreciation deductions in section 4.02 of this revenue procedure apply to automobiles (other than leased automobiles) that are placed in service in calendar year 1992 and continue to apply for each tax year that the automobile remains in service.

02. The table in section 4.03 of this revenue procedure applies to leased automobiles for which the lease term begins in calendar year 1992. Lessees of such automobiles must use this table to determine the inclusion amount for each tax year during which the automobile is leased. See sections 1.280F-5T(d), 1.280F-5T(e), and 1.280F-7T(a) of the temporary regulations, Rev. Proc. 89-64, 1989-2 C.B. 783, Rev. Proc. 90-22, 1990-1 C.B. 504, and Rev. Proc. 91-30, 1991-1 C.B. 563, to determine inclusion amounts for automobiles first leased before January 1, 1992.

SEC. 4. APPLICATION

01. A taxpayer placing an automobile in service for the first time during calendar year 1992 is limited to the depreciation deduction shown in Table 1 of section 4.02(2). A taxpayer first leasing an automobile in calendar year 1992 must use Table 2 in section 4.03 to determine the inclusion amount that is added to gross income. Otherwise, the procedures of section 1.280F-7T(a) of the temporary regulations must be followed.

02. LIMITATIONS ON, DEPRECIATIONS DEDUCTIONS FOR CERTAIN AUTOMOBILES.

(1) AMOUNT OF THE INFLATION ADJUSTMENT. Under section 280F(d)(7)(B)(i)x of Automobiles, the Code, the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. The term "CPI automobile component" is defined in section 280F(d)(7)(B)(ii) as the "automobile component" of the Consumer Price Index for all Urban Consumers published by the Department of Labor (the CPI). The new car component of the CPI was 115.2 for October 1987 and 125.0 for October 1991. The October 1991 index exceeded the October 1987 index by 9.8. The Internal Revenue Service has, therefore, determined that the automobile price inflation adjustment for 1992 is 8.51 percent (9.8/115.2 x 100%). This adjustment is applicable to all automobiles that are first placed in service in calendar year 1992. The dollar limitations in section 280F(a) must therefore be multiplied by a factor of 0.0851, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for 1992.

(2) AMOUNT OF THE LIMITATION. For automobiles placed in service in calendar year 1992, Table 1 contains the dollar amount of the depreciation limitations for each tax year.

                       REV. PROC. 92-43 TABLE 1

The inclusion amounts for automobiles first leased in calendar year 1992 are calculated under the procedures described in section 1.280F-7T(a) of the temporary regulations. Table 2 of this revenue procedure is the applicable table to be used in applying those procedures.

                       REV. PROC. 92-43 TABLE 2

This revenue procedure is effective for automobiles (other than leased automobiles) that are first placed in service during calendar year 1992 and to leased automobiles that are first leased during calendar year 1992.

DRAFTING INFORMATION

The principal author of this revenue procedure is Bernard P. Harvey of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure contact Mr. Harvey on (202) 566-3553 (not a toll-free call).