Section 1.1016-3

SECTION 1. PURPOSE

This revenue procedure modifies Rev. Proc. 82-61, 1982-2 C.B. 849, as modified by Rev. Proc. 83-74, 1983-2 C.B. 593, Rev. Proc. 84- 72, 1984-2 C.B. 735, Rev. Proc. 85-49, 1985-2 C.B. 716, Rev. Proc. 86-38, 1986-2 C.B. 701, and Rev. Proc. 87-49, 1987-2 C.B. 646, by increasing the optional standard mileage rate for the business use of an automobile for 1988. This revenue procedure also states that depreciation is considered to be allowed at 10.5 cents a mile for 1988 if the optional method for computing the costs of business use of an automobile is used.

SEC. 2. PROCEDURE

01. Paragraph 1(a) of section 3.01 of Rev. Proc. 82-61, which was modified by Rev. Proc. 83-74, Rev. Proc. 85-49, and Rev. Proc. 87-49, is further modified to read as follows:

Subject to the conditions and limitations set forth in section 3.012 below, with respect to transportation expenses paid or incurred after December 31, 1987, deductions will be accepted if computed at a standard mileage rate of (a) 24 cents a mile for the first 15,000 miles of use each year for business purposes, and (b) 11 cents a mile for use for business purposes in excess of 15,000 miles per year.

02. Paragraph 2(b) of section 3.01 of Rev. Proc. 82-61, which was modified by Rev. Proc. 83-74, Rev. Proc. 84-72, Rev. Proc. 85-49, Rev. Proc. 86-38, and Rev. Proc. 87-49, is further modified to read as follows:

In the case of automobiles placed in service for business purposes after December 31, 1979, and in which the optional method was used in 1980, 1981, 1982, 1983, 1984, 1985, 1986, 1987, or 1988, depreciation will be considered to have been allowed at the rate of 7 cents a mile for 1980 and 1981, 7.5 cents a mile for 1982, 8 cents a mile for 1983, 1984, and 1985, 9 cents a mile for 1986, 10 cents a mile in 1987, and 10.5 cents a mile in 1988, except that if the "actual cost" method was used for one or more of those years the rates above will not apply to any year in which that method was used. This depreciation will act to reduce the basis of the automobile in determining adjusted basis as required by section 1016 of the Code. An automobile placed in service after December 31, 1979, with respect to which the optional method is used is considered to have a useful life of 60,000 miles of business use at the maximum standard mileage rate determined without reference to the age of the vehicle. After 60,000 miles of business use at the maximum standard mileage rate, the automobile will be considered fully depreciated. For purposes of this paragraph, an automobile will be considered to have been driven no more than 15,000 miles in any one year, even though the actual business mileage of the automobile may be greater.

SEC. 3. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 82-61, as modified by Rev. Proc. 83-74, Rev. Proc. 84-72, Rev. Proc. 85-49, Rev. Proc. 86-38, and Rev. Proc. 87-49, is further modified.

DRAFTING INFORMATION

The principal author of this revenue procedure is Morton Meretsky of the Office of Assistant Chief Counsel, Income Tax and Accounting. For further information regarding this revenue procedure contact Mr. Meretsky on (202) 566-3637 (not a toll-free call).