§ 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 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 §§ 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 § 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 § 1.280F-6(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 (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): (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 § 1.280F-6(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 § 1.280F-5T(f) for property for which the taxpayer's lease term begins before January 1, 1987). See also § 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 § 1.280F-5T(h)(2)) of the property, (B) The business/investment use (as defined in § 1.280F-6(d)(3)(i)) for the first taxable year in which the business use percentage (as defined in § 1.280F-6(d)(1)) is 50 percent or less, and (C) The applicable percentage from the following table: (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: (3) Example. The following example illustrates the application of this paragraph (b):