IRS Revises Guidance Providing Limits On Depreciation Deductions For Autos.

Rev. Proc. 2003-75

SECTION 1. PURPOSE

01. This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2003, including special tables of limitations on depreciation deductions for trucks and vans, and for 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 by the taxpayer during calendar year 2003, including a separate table of inclusion amounts for lessees of trucks and vans, and a separate table for lessees of electric automobiles; and (3) the maximum allowable value of employer-provided passenger automobiles first made available to employees for personal use in calendar year 2003 for which the vehicle cents-per-mile valuation rule provided under § 1.61-21(e) of the Income Tax Regulations may be applicable.

02. This revenue procedure also provides: (1) tables of dollar limitations on depreciation deductions for owners of passenger automobiles to which the additional 30 percent first-year allowance for depreciation available under § 168(k)(1)(A) applies, including special tables of limitations on depreciation deductions for qualifying trucks and vans and for qualifying electric automobiles; (2) tables of dollar limitations on depreciation deductions for owners of passenger automobiles to which the additional 50 percent first-year allowance for depreciation available under § 168(k)(4) applies, including special tables of limitations on depreciation deductions for qualifying trucks and vans and for qualifying electric automobiles; and (3) revised tables of dollar limitations for passenger automobiles and electric automobiles that were placed in service by the taxpayer during 2001 and 2002 and to which the additional 30 percent first-year allowance for depreciation available under § 168(k)(1)(A) applies. For purposes of these tables, the additional 30 percent or 50 percent first-year allowance does not apply if the taxpayer has elected under § 168(k)(2)(C)(iii) not to take the additional allowance. Similarly, the additional 50 percent first-year allowance does not apply if the taxpayer has elected under § 168(k)(4)(E) to take the additional 30 percent allowance instead of the additional 50 percent allowance.

03. The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7). The maximum allowable passenger automobile value for applying the vehicle cents-per-mile valuation rule reflects the automobile price inflation adjustment of § 280F(d)(7) of the Internal Revenue Code, as required by § 1.61-21(e)(1)(iii)(A).

SECTION 2. BACKGROUND

01. For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. In the case of electric automobiles placed in service after August 5, 1997, and before January 1, 2005, § 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. The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI "automobile component" (the "new trucks" component) than that used in the price inflation amount calculation for other passenger automobiles (the "new cars" component), resulting in somewhat higher depreciation deductions for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. For purposes of this revenue procedure, the term "trucks and vans" refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.

02. Section 101 of the Job Creation and Worker Assistance Act of 2002, Pub. L. No. 107-147, 116 Stat. 21 (March 9, 2002) added § 168(k) to the Code. Generally, § 168(k)(1)(A) provides an additional 30 percent first-year depreciation deduction for new property acquired by the taxpayer after September 10, 2001, and before September 11, 2004 (subsequently extended to January 1, 2005), so long as no written binding contract for the acquisition of the property existed prior to September 11, 2001. In the case of a passenger automobile to which the 30 percent additional allowance applies (other than a § 168(k)(4) passenger automobile described in section 2.03 of this revenue procedure, or a passenger automobile for which a taxpayer has made an election under § 168(k)(2)(C)(iii)), § 168(k)(2)(E) increases the first-year depreciation allowed under § 280F(a)(1)(A) by $4,600. For purposes of this revenue procedure, a passenger automobile to which the additional 30 percent first-year allowance under § 168(k)(1)(A) applies (other than a § 168(k)(4) passenger automobile described in section 2.03 of this revenue procedure, or a passenger automobile for which a taxpayer has made an election under § 168(k)(2)(C)(iii)) is referred to as a "§ 168(k)(1) passenger automobile".

03. Section 201 of the Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108-27, 117 Stat. 752 (May 28, 2003) added § 168(k)(4) to the Code. Section 168(k)(4)(A)(i) provides that § 168(k)(1) is applied by substituting "50 percent" for "30 percent" for new property acquired by the taxpayer after May 5, 2003, and before January 1, 2005, so long as no written binding contract for the acquisition of the property existed prior to May 6, 2003. In the case of a passenger automobile to which the 50 percent additional allowance applies (or would apply but for an election under § 168(k)(4)(E)) and for which no election has been made under § 168(k)(2)(C)(iii), § 168(k)(4)(D) increases the first-year depreciation allowed under § 280F(a)(1)(A) by $7,650. For purposes of this revenue procedure, a passenger automobile to which the additional 50 percent first-year allowance under § 168(k)(4) applies (or would apply but for an election under § 168(k)(4)(E)) and for which no election has been made under § 168(k)(2)(C)(iii) is referred to as a "§ 168(k)(4) passenger automobile".

04. For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under § 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, a table for lessees of trucks and vans, 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 passenger automobile is first leased. These tables should also be used by lessees of § 168(k)(1) passenger automobiles and § 168(k)(4) passenger automobiles.

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

SECTION 3. SCOPE AND OBJECTIVE

01. The limitations on depreciation deductions in section 4.02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2003, and continue to apply for each tax year that the passenger automobile remains in service.

02. The tables in section 4.03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2003. Lessees of such passenger automobiles must use these tables to determine the inclusion amount for each tax year during which the passenger automobile is leased. See Rev. Proc. 2002-14, 2002-1 C.B. 450, for passenger automobiles first leased before January 1, 2003.

03. The maximum fair market value figure in section 4.04(2) of this revenue procedure applies to employer-provided passenger automobiles first made available to any employee for personal use in calendar year 2003. See Rev. Proc. 2002-14 for the maximum fair market value figure for passenger automobiles first made available before January 1, 2003.

04. The revised limitations on depreciation deductions in section 4.05(2) of this revenue procedure apply to § 168(k)(1) passenger automobiles placed in service by the taxpayer during 2001 and 2002. The tables in section 4.05(2) of this revenue procedure amplify both Rev. Proc. 2001-19, 2001-1 C.B. 732, and Rev. Proc 2002-14 by providing tables for § 168(k)(1) passenger automobiles to which those revenue procedures apply.

SECTION 4. APPLICATION

01. In General.

(1) Limitations on Depreciation Deductions for Certain Automobiles. The limitations on depreciation deductions for passenger automobiles placed in service by the taxpayer for the first time during calendar year 2003 are found in Tables 1 through 9 in section 4.02(2) of this revenue procedure. Table 1 of this revenue procedure provides limitations on depreciation deductions for a passenger automobile (other than a truck, van, electric automobile, § 168(k)(1) passenger automobile, or § 168(k)(4) passenger automobile). Table 2 of this revenue procedure provides limitations on depreciation deductions for a § 168(k)(1) passenger automobile (other than a truck, van, or electric automobile). Table 3 of this revenue procedure provides limitations on depreciation deductions for a § 168(k)(4) passenger automobile (other than a truck, van, or electric automobile). Table 4 of this revenue procedure provides limitations on depreciation deductions for a truck or van (other than a § 168(k)(1) passenger automobile or § 168(k)(4) passenger automobile). Table 5 of this revenue procedure provides limitations on depreciation deductions for a truck or van that is a § 168(k)(1) passenger automobile. Table 6 of this revenue procedure provides limitations on depreciation deductions for a truck or van that is a § 168(k)(4) passenger automobile. Table 7 of this revenue procedure provides limitations on depreciation deductions for an electric automobile (other than a § 168(k)(1) passenger automobile or § 168(k)(4) passenger automobile). Table 8 of this revenue procedure provides limitations on depreciation deductions for an electric automobile that is a § 168(k)(1) passenger automobile. Table 9 of this revenue procedure provides limitations on depreciation deductions for an electric automobile that is a § 168(k)(4) passenger automobile.

(2) Inclusions in Income of Lessees of Passenger Automobiles. A taxpayer first leasing a passenger automobile during calendar year 2003 must determine the inclusion amount that is added to gross income using the tables in section 4.03 of this revenue procedure. The inclusion amount is determined using Table 10 in the case of a passenger automobile (other than a truck, van, or electric automobile), Table 11 in the case of a truck or van, and Table 12 in the case of an electric automobile. In addition, the procedures of § 1.280F-7(a) must be followed.

(3) Maximum Automobile Value for Using the Cents-per-mile Valuation Rule. An employer providing a passenger automobile for the first time in calendar year 2003 for the personal use of any employee may determine the value of the use of the passenger automobile by using the cents-per-mile valuation rule in § 1.61-21(e) if the fair market value of the passenger automobile does not exceed the amount specified in section 4.04(2) of this revenue procedure. If the fair market value of the passenger 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 passenger automobile under the general valuation rules of § 1.61-21(b) or under the special valuation rules of § 1.61-21(d) (Automobile lease valuation) or § 1.61-21(f) (Commuting valuation) if the applicable requirements are met.

(4) Limitations on Depreciation Deductions for Certain Passenger Automobiles Placed in Service in 2001 or 2002. Depreciation deductions with respect to § 168(k)(1) passenger automobiles placed in service during calendar year 2001 or 2002 are limited to the amounts set forth in Tables 13 through 16 of section 4.05(2) of this revenue procedure.

02. Limitations on Depreciation Deductions for Certain Automobiles.

(1) Amount of the Inflation Adjustment. Under § 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 § 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 136.7 for October 2002. The October 2002 index exceeded the October 1987 index by 21.5. The Service has, therefore, determined that the automobile price inflation adjustment for 2003 for passenger automobiles (other than trucks and vans) is 18.66 percent (21.5/115.2 x 100%). This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2003. The dollar limitations in § 280F(a) must therefore be multiplied by a factor of 0.1866, 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 trucks, vans, and electric automobiles) for calendar year 2003. To determine the dollar limitations applicable to an electric automobile first placed in service during calendar year 2003, the dollar limitations in § 280F(a) are tripled in accordance with § 280F(a)(1)(C) and are then multiplied by a factor of 0.1866; the resulting increases, after rounding to the nearest $100, are added to the tripled 1988 limitations to give the depreciation limitations for calendar year 2003. To determine the dollar limitations applicable to trucks and vans first placed in service during calendar year 2003, the new truck component of the CPI is used instead of the new car component. The new truck component of the CPI was 112.4 for October 1987 and 147.5 for October 2002. The October 2002 index exceeded the October 1987 index by 35.1. The Service has, therefore, determined that the automobile price inflation adjustment for 2003 for trucks and vans is 31.23 percent (35.1/112.4 x 100%). This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2003. The dollar limitations in § 280F(a) must therefore be multiplied by a factor of 0.3123, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to trucks and vans.

(2) Amount of the Limitation. For passenger automobiles placed in service by the taxpayer in calendar year 2003, Tables 1 through 9 contain the dollar amount of the depreciation limitation for each tax year. Use Table 1 for passenger automobiles (other than trucks, vans, electric automobiles, § 168(k)(1) passenger automobiles, and § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2003. Use Table 2 for § 168(k)(1) passenger automobiles (other than trucks, vans, and electric automobiles) placed in service by the taxpayer in calendar year 2003. Use Table 3 for § 168(k)(4) passenger automobiles (other than trucks, vans, and electric automobiles) placed in service by the taxpayer in calendar year 2003. Use Table 4 for trucks and vans (other than § 168(k)(1) passenger automobiles and § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2003. Use Table 5 for trucks or vans that are § 168(k)(1) passenger automobiles placed in service by the taxpayer in calendar year 2003. Use Table 6 for trucks or vans that are § 168(k)(4) passenger automobiles placed in service by the taxpayer in calendar year 2003. Use Table 7 for electric automobiles (other than § 168(k)(1) passenger automobiles and § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2003. Use Table 8 for electric automobiles that are § 168(k)(1) passenger automobiles placed in service by the taxpayer in calendar year 2003. Use Table 9 for electric automobiles that are § 168(k)(4) passenger automobiles placed in service by the taxpayer in calendar year 2003.

The inclusion amounts for passenger automobiles (including § 168(k)(1) passenger automobiles and § 168(k)(4) passenger automobiles) first leased in calendar year 2003 are calculated under the procedures described in § 1.280F-7(a). Lessees of passenger automobiles other than trucks, vans, and electric automobiles should use Table 10 of this revenue procedure in applying these procedures, while lessees of trucks and vans should use Table 11 of this revenue procedure and lessees of electric automobiles should use Table 12 of this revenue procedure.

(1) Amount of Adjustment. Under § 1.61-21(e)(1)(iii)(A), the limitation on the fair market value of an employer-provided passenger automobile first made available to any employee for personal use after 1988 is to be adjusted in accordance with § 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 136.7 for October 2002. The October 2002 index exceeded the October 1987 index by 21.5. The Service has, therefore, determined that the adjustment for 2003 is 18.66 percent (21.5/115.2 x 100%). This adjustment is applicable to all employer-provided passenger automobiles first made available to any employee for personal use in calendar year 2003. The maximum fair market value specified in § 1.61-21(e)(1)(iii)(A) must therefore be multiplied by a factor of 0.1866, and the resulting increase, after rounding to the nearest $100, is added to $12,800 to give the maximum value for calendar year 2003.

(2) The Maximum Automobile Value. For passenger automobiles first made available in calendar year 2003 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 passenger automobile on the date it is first made available does not exceed $15,200.

.05 Revised Limitation Amounts for § 168(k)(1) Passenger Automobiles Placed in Service During 2001 and 2002.

(1) Calculation of the Revised Amount. The revised depreciation limits provided in this section for § 168(k)(1) passenger automobiles (other than electric automobiles) were calculated by augmenting the existing limitations on the first year allowance in Rev. Proc. 2001-19 (for passenger automobiles placed in service in calendar year 2001) and in Rev. Proc. 2002-14 (for passenger automobiles placed in service in calendar year 2002) by $4,600. Similarly, the revised depreciation limits provided in this section for electric automobiles that are § 168(k)(1) passenger automobiles were calculated by augmenting the existing limitations on the first year allowance in Rev. Proc. 2001-19 (for electric automobiles placed in service in calendar year 2001) and in Rev. Proc. 2002-14 (for electric automobiles placed in service in calendar year 2002) by $13,800 ($4,600 tripled).

(2) Amount of the Revised Limitation. For § 168(k)(1) passenger automobiles (other than electric automobiles) placed in service by the taxpayer in calendar year 2001, Table 13 of this revenue procedure contains the revised dollar amount of the depreciation limitations for each tax year. For electric automobiles that are § 168(k)(1) passenger automobiles placed in service by the taxpayer in calendar year 2001, Table 14 of this revenue procedure contains these revised amounts. For § 168(k)(1) passenger automobiles (other than electric automobiles) placed in service by the taxpayer in calendar year 2002, Table 15 of this revenue procedure contains the revised dollar amount of the depreciation limitations for each tax year. For electric automobiles that are § 168(k)(1) passenger automobiles placed in service by the taxpayer in calendar year 2002, Table 16 of this revenue procedure contains these revised amounts.

This revenue procedure, with the exception of section 4.05, applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by the taxpayer during calendar year 2003, to leased passenger automobiles that are first leased by the taxpayer during calendar year 2003, and to employer- provided passenger automobiles first made available to employees for personal use in calendar year 2003. Section 4.05 of this revenue procedure applies to § 168(k)(1) passenger automobiles that are placed in service by the taxpayer during calendar year 2001 or 2002.

SECTION 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2001-19 and Rev. Proc. 2002-14 are amplified.

DRAFTING INFORMATION

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 John B. Richards of the Office of the Associate Chief Counsel (Tax Exempt and Government Entities) at (202) 622-6040 (not toll-free calls).