SECTION 2. BACKGROUND

For owners of automobiles, § 280F(a)(1)(A) imposes dollar limitations on the depreciation deduction for both the year that the automobile is placed in service and each succeeding year. Section 280F(a)(1)(C)(ii) provides that in the case of a “purpose built passenger vehicle” (as defined in § 4001(a)(2)(C)(ii)), each of the annual limitations specified in § 280F(a)(1)(A) shall be tripled. Section 4001(a)(2)(C)(ii) provides that a purpose built passenger vehicle means a passenger vehicle produced by an original equipment manufacturer and designed so that the vehicle may be propelled primarily by electricity.

Section 280F(d)(7) requires the amounts allowable as depreciation deductions under § 280F(a)(1)(A) to be increased by a price inflation adjustment amount for passenger automobiles placed in service after calendar year 1988.

For leased automobiles, § 280F(c) requires a reduction in the deduction al

1998–10 I.R.B. 31 March 9, 1998

lowed 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 § 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. The table shows inclusion amounts for a range of fair market values for each tax year after the automobile is first leased.