CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER A—INCOME TAX (Parts 1–19) > PART 1—INCOME TAXES > 1.280F-5T—Leased property (temporary).

1.280F-5T—Leased property (temporary).

(a) In general. Except as otherwise provided in this section, the limitation on cost recovery deductions and the investment tax credit provided in section 280F (a) and (b) and §§ 1.280F-2T and 1.280F-3T do not apply to any listed property leased or held for leasing by any person regularly engaged in the business of leasing listed property. If a person is not regularly engaged in the business of leasing listed property, the limitations on cost recovery deductions and the investment tax credit provided in section 280F and §§ 1.280F-2T and 1.280F-3T apply to such property leased or held for leasing by such person. The special rules for lessees set out in this section apply with respect to all lessees of listed property, even those whose lessors are not regularly engaged in the business of leasing listed property. For rules on determining inclusion amounts with respect to passenger automobiles, see paragraphs (d), (e) and (g) of this section, and see § 1.280F-7(a). For rules on determining inclusion amounts with respect to other listed property, see paragraphs (f) and (g) of this section, and see § 1.280F-7(b).
(b) election. If a lessor elects under section 48(d) with respect to any listed property to treat the lessee as having acquired such property, the amount of the investment tax credit allowed to the lessee is subject to the limitation prescribed in § 1.280F-3T(b) (1) and (2). If a lessor elects under section 48(d) with respect to any passenger automobile to treat the lessee as having acquired such automobile, the amount of the investment tax credit allowed to the lessee is also subject to the limitations prescribed in § 1.280F-2T (a) and (i).
(c) Regularly engaged in the business of leasing. For purposes of paragraph (a) of this section, a person shall be considered regularly engaged in the business of leasing listed property only if contracts to lease such property are entered into with some frequency over a continuous period of time. The determination shall be made on the basis of the facts and circumstances in each case, taking into account the nature of the person's business in its entirety. Occasional or incidental leasing activity is insufficient. For example, a person leasing only one passenger automobile during a taxable year is not regularly engaged in the business of leasing automobiles. In addition, an employer that allows an employee to use the employer's property for personal purposes and charges such employee for the use of the property is not regularly engaged in the business of leasing with respect to the property used by the employee.
(d) Inclusions in income of lessees of passenger automobiles leased after June 18, 1984, and before April 3, 1985— (1) In general. If a taxpayer leases a passenger automobile after June 18, 1984, but before April 3, 1985, for each taxable year (except the last taxable year) during which the taxpayer leases the automobile, the taxpayer must include in gross income an inclusion amount (prorated for the number of days of the lease term included in that taxable year), determined under this paragraph (d)(1), and multiplied by the business/investment use (as defined in § 1.280F-6(d)(3)(i)) for the particular taxable year. The inclusion amount:
(i) Is 7.5 percent of the excess (if any) of the automobile's fair market value over $16,500 for each of the first three taxable years during which a passenger automobile is leased.
(ii) Is 6 percent of the excess (if any) of the automobile's fair market value over $22,500 for the fourth taxable year during which a passenger automobile is leased.
(iii) Is 6 percent of the excess (if any) of the automobile's fair market value over $28,500 for the fifth taxable year during which a passenger automobile is leased.
(iv) Is 6 percent of the excess (if any) of the automobile's fair market value over $34,500 for the sixth taxable year during which a passenger automobile is leased.

Code of Federal Regulations

For the seventh and subsequent taxable years during which a passenger automobile is leased, the inclusion amount is 6 percent of the excess (if any) of the automobile's fair market value over the sum of (A) $16,500 and (B) $6,000 multiplied by the number of such taxable years in excess of three years. See paragraph (g)(2) of this section for the definition of fair market value.
(2) Additional inclusion amount when less than predominant use in a qualified business use. (i) If a passenger automobile, which is leased after June 18, 1984, and before April 3, 1985, is not used predominantly in a qualified business use during a taxable year, the lessee must add to gross income in the first taxable year that the automobile is not so used (and only in that year) an inclusion amount determined under this paragraph (d)(2). This inclusion amount is in addition to the amount required to be included in gross income under paragraph (d)(1) of this section.
(ii) If the fair market value (as defined in paragraph (h)(2) of this section) of the automobile is greater than $16,500, the inclusion amount is determined by multiplying the average of the business/investment use (as defined in paragraph (h)(3) of this section) by the appropriate dollar amount from the table in paragraph (d)(2)(iii) of this section. If the fair market value (as defined in paragraph (h)(2) of this section) of the automobile is $16,500 or less, the inclusion amount is the product of the fair market value of the automobile, the average business/investment use, and the applicable percentage from the table in paragraph (d)(2)(iv) of this section.
(iii) The dollar amount is determined under the following table:
If a passenger automobile is not predominantly used in a qualified business use during— The dollar amount: Lease term (years) 1 2 3 4 or more
The first taxable year of the lease term $350 $700 $1,350 $1,850
The second taxable year of the lease term 650 1,250
The third taxable year of the lease term 650
(iv) The applicable percentage is determined under the following table:
If a passenger automobile is not predominantly used in a qualified business use during— The applicable percentage: Lease term (years) 1 2 3 4 or more
The first taxable year of the lease term 3.0 6.0 10.2 13.2
The second taxable year of the lease term 1.25 6.2 10.4
Code of Federal Regulations 825
The third taxable year of the lease term 2.25 6.5
The fourth taxable year of the lease term 1.7
The fifth taxable year of the lease term 0.5
(e) Inclusions in income of lessees of passenger automobiles leased after April 2, 1985, and before January 1, 1987— (1) In general. For any passenger automobile that is leased after April 2, 1985, and before January 1, 1987, for each taxable year (except the last taxable year) during which the taxpayer leases the automobile, the taxpayer must include in gross income an inclusion amount determined under subparagraphs (2) through (5) of this paragraph (e). Additional inclusion amounts when a passenger automobile is not used predominantly in a qualified business use during a taxable year are determined under paragraph (e)(6) of this section. See paragraph (h)(2) of this section for the definition of fair market value.
(2) Fair market value not greater than $50,000: years one through three. For any passenger automobile that has a fair market value not greater than $50,000, the inclusion amount for each of the first three taxable years during which the automobile is leased is determined as follows:
(i) For the appropriate range of fair market values in the table in paragraph (e)(2)(iv) of this section, select the dollar amount from the column for the quarter of the taxable year in which the automobile is first used under the lease,
(ii) Prorate the dollar amount for the number of days of the lease term included in the taxable year, and
(iii) Multiply the prorated dollar amount by the business/investment use for the taxable year.
(iv) Dollar amounts: Years 1-3:
Dollar Amounts: Years 1-3
Fair market value Taxable year quarter
Greater than— But not greater than— 4th 3d 2d 1st
$11,250 $11,500 $8 $7 $6 $6
11,500 11,750 24 21 19 17
11,750 12,000 40 35 32 29
12,000 12,250 56 49 44 40
12,250 12,500 72 64 57 52
12,500 12,750 88 78 70 63
12,750 13,000 104 92 83 75
13,000 13,250 120 106 95 86
13,250 13,500 144 128 115 104
13,500 13,750 172 153 137 124
13,750 14,000 200 177 159 145
14,000 14,250 228 202 182 165
14,250 14,500 256 227 204 185
14,500 14,750 284 252 226 206
14,750 15,000 312 277 249 226
15,000 15,250 340 302 271 246
15,250 15,500 369 327 293 266
15,500 15,750 397 352 316 287
15,750 16,000 425 377 338 307
16,000 16,250 453 402 360 327
16,250 16,500 481 426 383 348
16,500 16,750 509 451 405 368
16,750 17,000 537 476 428 388
17,000 17,500 579 514 461 419
17,500 18,000 635 563 506 459
18,000 18,500 691 613 550 500
18,500 19,000 748 663 595 541
19,000 19,500 804 713 640 581
19,500 20,000 860 763 685 622
20,000 20,500 916 812 729 662
20,500 21,000 972 862 774 703
21,000 21,500 1,028 912 819 744
21,500 22,000 1,084 962 863 784
22,000 23,000 1,169 1,036 930 845
23,000 24,000 1,281 1,136 1,020 926
24,000 25,000 1,393 1,236 1,109 1,007
25,000 26,000 1,506 1,335 1,199 1,089
26,000 27,000 1,618 1,435 1,288 1,170
27,000 28,000 1,730 1,534 1,377 1,251
28,000 29,000 1,842 1,634 1,467 1,332
29,000 30,000 1,955 1,734 1,556 1,413
30,000 31,000 2,067 1,833 1,646 1,495
31,000 32,000 2,179 1,933 1,735 1,576
32,000 33,000 2,292 2,032 1,824 1,657
33,000 34,000 2,404 2,132 1,914 1,738
34,000 35,000 2,516 2,232 2,003 1,819
35,000 36,000 2,629 2,331 2,093 1,901
36,000 37,000 2,741 2,431 2,182 1,982
37,000 38,000 2,853 2,530 2,271 2,063
38,000 39,000 2,965 2,630 2,361 2,144
39,000 40,000 3,078 2,730 2,450 2,225
40,000 41,000 3,190 2,829 2,540 2,307
41,000 42,000 3,302 2,929 2,629 2,388
42,000 43,000 3,415 3,028 2,718 2,469
43,000 44,000 3,527 3,128 2,808 2,550
44,000 45,000 3,639 3,228 2,897 2,631
45,000 46,000 3,752 3,327 2,987 2,713
46,000 47,000 3,864 3,427 3,076 2,794
47,000 48,000 3,976 3,526 3,165 2,875
48,000 49,000 4,088 3,626 3,255 2,956
49,000 50,000 4,201 3,726 3,344 3,037
(3) Fair market value not greater than $50,000: years four through six. For any passenger automobile that has a fair market value greater than $18,000, but not greater than $50,000, the inclusion amount for the fourth, fifth, and sixth taxable years during which the automobile is leased is determined as follows:
(i) For the appropriate range of fair market values in the table in paragraph (e)(3)(iv) of this section, select the dollar amount from the column for the taxable year in which the automobile is used under the lease,
(ii) Prorate the dollar amount for the number of days of the lease term included in the taxable year, and
(iii) Multiply this dollar amount by the business/investment use for the taxable year.
(iv) Dollar Amounts: Years 4-6:
Dollar Amounts: Years 4-6
Fair market value Year
Greater than— But not greater than— 4 5 6
$18,000 $18,500 $15
18,500 19,000 45
19,000 19,500 75
19,500 20,000 105
20,000 20,500 135
20,500 21,000 165
21,000 21,500 195
21,500 22,000 225
22,000 23,000 270
23,000 24,000 330 $42
24,000 25,000 390 102
25,000 26,000 450 162
26,000 27,000 510 222
27,000 28,000 570 282
28,000 29,000 630 342 $54
29,000 30,000 690 402 114
30,000 31,000 750 462 174
31,000 32,000 810 522 234
32,000 33,000 870 582 294
33,000 34,000 930 642 354
34,000 35,000 990 702 414
35,000 36,000 1,050 762 474
36,000 37,000 1,110 822 534
37,000 38,000 1,170 882 594
38,000 39,000 1,230 942 654
39,000 40,000 1,290 1,002 714
40,000 41,000 1,350 1,062 774
41,000 42,000 1,410 1,122 834
42,000 43,000 1,470 1,182 894
43,000 44,000 1,530 1,242 954
44,000 45,000 1,590 1,302 1,014
45,000 46,000 1,650 1,362 1,074
46,000 47,000 1,710 1,422 1,134
47,000 48,000 1,770 1,482 1,194
48,000 49,000 1,830 1,542 1,254
49,000 50,000 11,890 1,602 1,314
(4) Fair market value greater than $50,000: years one through six. (i) For any passenger automobile that has a fair market value greater than $50,000, the inclusion amount for the first six taxable years during which the automobile is leased is determined as follows:
(A) Determine the dollar amount by using the appropriate formula in paragraph (e)(4)(ii) of this section,
(B) Prorate the dollar amount for the number of days of the lease term included in the taxable year, and
(C) Multiply this dollar amount by the business/investment use for the taxable year.
(ii) The dollar amount is computed as follows:
(A) If the automobile is first used under the lease in the fourth quarter of a taxable year, the dollar amount for each of the first three taxable years during which the automobile is leased is the sum of—
(1) $124, and
(2) 11 percent of the excess of the automobile's fair market value over $13,200.
(B) If the automobile is first used under the lease in the third quarter of a taxable year, the dollar amount for each of the first three taxable years during which the automobile is leased is the sum of—
(1) $110, and
(2) 10 percent of the excess of the automobile's fair market value over $13,200.
(C) If the automobile is first used under the lease in the second quarter of a taxable year, the dollar amount for each of the first three taxable years during which the automobile is leased is the sum of—
(1) $100, and
(2) 9 percent of the excess of the automobile's fair market value over $13,200.
(D) If the automobile is first used under the lease in the first quarter of a taxable year, the dollar amount for each of the first three taxable years during which the automobile is leased is the sum of—
(1) $90, and
(2) 8 percent of the excess of the automobile's fair market value over $13,200.
(E) For the fourth taxable year during which the automobile is leased, the dollar amount is 6 percent of the excess of the automobile's fair market value over $18,000.
(F) For the fifth taxable year during which the automobile is leased, the dollar amount is 6 percent of the excess of the automobile's fair market value over $22,800.
(G) For the sixth taxable year during which the automobile is leased, the dollar amount is 6 percent of the excess of the automobile's fair market value over $27,600.
(5) Seventh and subsequent taxable years. (i) For any passenger automobile that has a fair market value less than or equal to $32,400, the inclusion amount for the seventh and subsequent taxable years during which the automobile is leased is zero.
(ii) For any passenger automobile that has a fair market value greater than $32,400, the inclusion amount for the seventh and subsequent taxable years during which the automobile is leased is 6 percent of—
(A) The excess (if any) of the automobile's fair market value, over
(B) The sum of—
(1) $13,200 and
(2) $4,800 multiplied by the number of taxable years in excess of three years.
(6) Additional inclusion amount when less than predominant use in a qualified business use. (i) If a passenger automobile, which is leased after April 2, 1985, and before January 1, 1987, is not predominantly used in a qualified business use during a taxable year, the lessee must add to gross income in the first taxable year that the automobile is not so used (and only in that year) an inclusion amount determined under this paragraph (e)(6). This inclusion amount is in addition to the amount required to be included in gross income under paragraph (e) (2), (3), (4), and (5) of this section.
(ii) If the fair market value (as defined in paragraph (h)(2) of this section) of the automobile is greater than $11,250, the inclusion amount is determined by multiplying the average of the business/investment use (as defined in paragraph (h)(3) of this section) by the appropriate dollar amount from the table in paragraph (e)(6)(iii) of this section. If the fair market value of the automobile is $11,250 or less, the inclusion amount is the product of the fair market value of the automobile, the average business/investment use, and the applicable percentage from the table in paragraph (e)(6)(iv) of this section.
(iii) The dollar amount is determined under the following table:
If a passenger automobile is not predominantly used in a qualified business use during— The dollar amount is: Lease term (years)— 1 2 3 4 or more
The first taxable year of the lease term $350 $700 $1,150 $1,500
The second taxable year of the lease term 150 700 1,200
The third taxable year of the lease term 250 750
(iv) The applicable percentage is determined under the following table:
If a passenger automobile is not predominantly used in a qualified business use during— The applicable percentage: Lease term (years)— 1 2 3 4 or more
The first taxable year of the lease term 3.0 6.0 10.2 13.2
The second taxable year of the lease term 1.25 6.2 10.4
The third taxable year of the lease term 2.25 6.5
The fourth taxable year of the lease term 1.7
The fifth taxable year of the lease term 0.5
(f) Inclusions in income of lessees of listed property other than passenger automobiles— (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 inclusion amount is determined under paragraph (f)(2) of this section for property leased after June 18, 1984, and before January 1, 1987. The inclusion amount is determined under § 1.280F-7(b) for property leased after December 31, 1986.
(2) Inclusion amount for property leased after June 18, 1984, and before January 1, The inclusion amount for property leased after June 18, 1984, and before January 1, 1987, is the product of the following amounts:
(i) The fair market value (as defined in paragraph (h)(2) of this section) of the property,
(ii) The average business/investment use (as defined in paragraph (h)(3) of this section), and
(iii) The applicable percentage (as determined under paragraph (f)(3) of this section).
(3) Applicable percentages. The applicable percentages for 3-, 5-, and 10-year recovery property are determined according to the following tables:
(i) In the case of 3-year recovery property:
Taxable year during lease term For the first taxable year in which the business use percentage is 50 percent or less, the applicable percentage for such taxable year is—
1 2 3 4 5 6 and later
For a lease term of:
1 year 3.0
2 years 6.0 1.25
3 years 10.2 6.2 2.25
4 or more years 13.2 10.4 6.5 1.7 0.5 0
(ii) In the case of 5-year recovery property:




Taxable year during lease term For the first taxable year in which the business use percentage is 50 percent or less, the applicable percentage for such taxable year is—
1 2 3 4 5 6 7 8 9 10 11 12
For a lease term of:
1 year 2.7
2 years 5.3 1.2
3 years