IRS Provides Limits On Depreciation Deductions For Autos.

Rev. Proc. 2001-19

SECTION 1. PURPOSE

[1] This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service during calendar year 2001, including separate limitations on passenger automobiles designed to be propelled primarily by electricity and built by an original equipment manufacturer (electric automobiles); (2) the amounts to be included in income by lessees of passenger automobiles first leased during calendar year 2001, including separate inclusion amounts for electric automobiles; and (3) the maximum allowable value of employer-provided automobiles first made available to employees for personal use in calendar year 2001 for which the vehicle cents-per-mile valuation rule provided under section 1.61-21(e) of the Income Tax Regulations may be applicable. The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by section 280F(d)(7) of the Internal Revenue Code. The maximum allowable automobile value for applying the vehicle cents-per-mile valuation rule reflects the automobile price inflation adjustment of section 280F(d)(7) as required by section 1.61-21(e)(1)(iii)(A).

SECTION 2. BACKGROUND

[2] For owners of automobiles, section 280F(a) imposes dollar limitations on the depreciation deduction for the year that the automobile is placed in service and each succeeding year. In the case of electric automobiles placed in service after August 5, 1997, and before January 1, 2005, section 280F(a)(1)(C) requires tripling of these limitation amounts. 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 1988.

[3] For leased automobiles, section 280F(c) 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-7(a), 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. There is a table for lessees of electric automobiles and a table for all other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each tax year after the automobile is first leased.

[4] For automobiles first provided by employers to employees that meet the requirements of section 1.61-21(e)(1), the value to the employee of the use of the automobile may be determined under the vehicle cents-per-mile valuation rule of section 1.61-21(e). Section 1.61-21(e)(1) (iii)(A) provides that for an automobile first made available after 1988 to any employee of the employer for personal use, the value of the use of the automobile may not be determined under the vehicle cents-per-mile valuation rule for a calendar year if the fair market value of the automobile (determined pursuant to section 1.61-21(d)(5)(i) through (iv)) on the first date the automobile is made available to the employee exceeds $12,800 as adjusted by section 280F(d)(7).

SECTION 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 2001 and continue to apply for each tax year that the automobile remains in service.

02. The tables in section 4.03 of this revenue procedure apply to leased automobiles for which the lease term begins in calendar year 2001. Lessees of such automobiles must use these tables to determine the inclusion amount for each tax year during which the automobile is leased.

03. Rev. Proc. 96-25, 1996-1 C.B. 681, for information on determining inclusion amounts for automobiles first leased before January 1, 1997; Rev. Proc. 97-20, 1997-1 C.B. 647, for automobiles first leased during calendar year 1997, including electric automobiles first leased on or after January 1, 1997, and before August 6, 1997; Rev. Proc. 98-24, 1998-1 C.B. 663, for electric automobiles first leased after August 5, 1997, and before January 1, 1998; Rev. Proc. 98-30, 1998-1 C.B. 930, for all automobiles first leased in calendar year 1998; Rev. Proc. 99-14, 1999-1 C.B. 413, for all automobiles first leased in calendar year 1999; and Rev. Proc. 2000-18, 2000-9 I.R.B. 722, for all automobiles first leased in calendar year 2000.

04. The maximum fair market value figure in section 4.04(2) of this revenue procedure applies to employer-provided automobiles first made available to any employee for personal use in calendar year 2001. See Rev. Proc. 97-20, for the maximum fair market value figure for automobiles first made available in calendar year 1997; Rev. Proc. 98-30, for the maximum fair market value figure for automobiles first made available in calendar year 1998; Rev. Proc. 99-14, for the maximum fair market value figure for automobiles first made available in calendar year 1999; and Rev. Proc. 2000-18, for the maximum fair market value figure for automobiles first made available in calendar year 2000.

SECTION 4. APPLICATION

01. A taxpayer placing an automobile in service for the first time during calendar year 2001 is limited to the depreciation deduction shown in Table 1 of section 4.02(2) of this revenue procedure or, in the case of an electric automobile, Table 2 of this revenue procedure. A taxpayer first leasing an automobile in calendar year 2001 must determine the inclusion amount that is added to gross income using Table 3 of section 4.03 of this revenue procedure or, in the case of an electric automobile, Table 4 of this revenue procedure. In addition, the procedures of section 1.280F-7(a) must be followed. An employer providing an automobile for the first time in calendar year 2001 for the personal use of any employee may determine the value of the use of the automobile by using the cents-per-mile valuation rule in section 1.61-21(e) if the fair market value of the automobile does not exceed the amount specified in section 4.04(2) of this revenue procedure. If the fair market value of the automobile exceeds the amount specified in section 4.04(2) of this revenue procedure, the employer may determine the value of the use of the automobile under the general valuation rules of section 1.61-21(b) or under the special valuation rules of section 1.61-21(d) (Automobile lease valuation) or section 1.61-21(f) (Commuting valuation) if the applicable requirements are met.

02. LIMITATIONS ON DEPRECIATION DEDUCTIONS FOR CERTAIN AUTOMOBILES.

(1) AMOUNT OF THE INFLATION ADJUSTMENT. Under section 280F(d)(7)(B)(i), 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 138.6 for October 2000. The October 2000 index exceeded the October 1987 index by 23.4. The Internal Revenue Service has, therefore, determined that the automobile price inflation adjustment for 2001 is 20.31 percent (23.4/115.2 x 100%). This adjustment is applicable to all automobiles that are first placed in service in calendar year 2001. The dollar limitations in section 280F(a) must therefore be multiplied by a factor of 0.2031, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than electric automobiles) for calendar year 2001. To determine the dollar limitations applicable to an electric automobile first placed in service during calendar year 2001, the dollar limitations in section 280F(a) are tripled in accordance with section 280F(a)(1)(C) and are then multiplied by a factor of 0.2031; the resulting increases, after rounding to the nearest $100, are added to the tripled 1988 limitations to give the depreciation limitations for calendar year 2001.

(2) AMOUNT OF THE LIMITATION. For automobiles (other than electric automobiles) placed in service in calendar year 2001, Table 1 of this revenue procedure contains the dollar amount of the depreciation limitations for each tax year. For electric automobiles placed in service in calendar year 2001, Table 2 of this revenue procedure contains these amounts.

[5] The inclusion amounts for automobiles first leased in calendar year 2001 are calculated under the procedures described in section 1.280F-7(a). Lessees of automobiles other than electric automobiles should use Table 3 of this revenue procedure in applying these procedures, while lessees of electric automobiles should use Table 4 of this revenue procedure.

(1) AMOUNT OF ADJUSTMENT. Under section 1.61-21(e)(1)(iii)(A), the limitation on the fair market value of an employer-provided automobile first made available to any employee for personal use after 1988 is to be adjusted in accordance with section 280F(d)(7). Accordingly, the 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. See, section 4.02(1) of this revenue procedure. The new car component of the CPI was 115.2 for October 1987 and 138.6 for October 2000. The October 2000 index exceeded the October 1987 index by 23.4. The Internal Revenue Service has, therefore, determined that the adjustment for 2001 is 20.31 percent (23.4/115.2 x 100%). This adjustment is applicable to all employer-provided automobiles first made available to any employee for personal use in calendar year 2001. The maximum fair market value specified in section 1.61- 21(e)(1)(iii)(A) must therefore be multiplied by a factor of 0.2031, and the resulting increase, after rounding to the nearest $100, is added to $12,800 to give the maximum value for calendar year 2001.

(2) THE MAXIMUM AUTOMOBILE VALUE. For automobiles first made available in calendar year 2001 to any employee of the employer for personal use, the vehicle cents-per-mile valuation rule may be applicable if the fair market value of the automobile on the date it is first made available does not exceed $15,400.

SECTION 5. EFFECTIVE DATE

[6] This revenue procedure applies to automobiles (other than leased automobiles) that are first placed in service during calendar year 2001, to leased automobiles that are first leased during calendar year 2001, and to employer-provided automobiles first made available to employees for personal use in calendar year 2001.

DRAFTING INFORMATION

[7] The principal author of this revenue procedure is Bernard P. Harvey of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding the depreciation limitations and lessee inclusion amounts in this revenue procedure, contact Mr. Harvey at (202) 622-3110; for further information regarding the maximum automobile value for applying the vehicle cents-per-mile valuation rule, contact Ms. Lynne Camillo of the Office of the Associate Chief Counsel (Tax Exempt and Government Entities) at (202) 622-6040 (not toll-free calls).