rp-21-31.pdf

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26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, §§ 280F; 1.280F-7.)

Rev. Proc. 2021-31

SECTION 1. PURPOSE
This revenue procedure provides: (1) two tables of limitations on depreciation
deductions for owners of passenger automobiles placed in service by the taxpayer
during calendar year 2021; and (2) a table of dollar amounts that must be used to
determine income inclusions by lessees of passenger automobiles with a lease term
beginning in calendar year 2021. These tables reflect the automobile price inflation
adjustments required by § 280F(d)(7) of the Internal Revenue Code. For purposes of
this revenue procedure, the term “passenger automobiles” includes trucks and vans.
SECTION 2. BACKGROUND
.01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on
the depreciation deduction for the year the taxpayer places the passenger automobile in
service and for each succeeding year. For passenger automobiles placed in service
after 2018, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts
allowable as depreciation deductions by a price inflation adjustment amount that is
determined using the automobile component of the Chained Consumer Price Index for
all Urban Consumers published by the Department of Labor (“C-CPI-U”).
.02 Section 168(k)(1) provides that, in the case of qualified property, the depreciation
deduction allowed under § 167(a) for the taxable year in which the property is placed in

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service includes an allowance equal to the applicable percentage of the property’s
adjusted basis (hereinafter, referred to as Ҥ 168(k) additional first year depreciation
deduction”). Pursuant to § 168(k)(6)(A), the applicable percentage is 100 percent for
qualified property acquired and placed in service after September 27, 2017, and placed
in service before January 1, 2023, and is phased down 20 percent each year for
property placed in service through December 31, 2026. Pursuant to § 168(k)(8)(D)(i),
no § 168(k) additional first year depreciation deduction is allowed or allowable for
qualified property acquired by the taxpayer before September 28, 2017, and placed in
service by the taxpayer after 2019. For qualified property acquired and placed in
service after September 27, 2017, § 168(k)(2)(F)(i) increases the first-year depreciation
allowed under § 280F(a)(1)(A)(i) by $8,000.
.03 Tables 1 and 2 of this revenue procedure provide depreciation limitations for
passenger automobiles placed in service by the taxpayer during calendar year 2021.
Table 1 provides depreciation limitations for passenger automobiles acquired by the
taxpayer after September 27, 2017, and placed in service by the taxpayer during
calendar year 2021, for which the § 168(k) additional first year depreciation deduction
applies. Table 2 provides depreciation limitations for passenger automobiles placed in
service by the taxpayer during calendar year 2021 for which no § 168(k) additional first
year depreciation deduction applies. The § 168(k) additional first year depreciation
deduction does not apply for 2021 if the taxpayer: (1) did not use the passenger
automobile during 2021 more than 50 percent for business purposes; (2) elected out of
the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(7) for the
class of property that includes passenger automobiles; (3) acquired the passenger

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automobile used and the acquisition of such property did not meet the acquisition
requirements in § 168(k)(2)(E)(ii) and § 1.168(k)-2(b)(3)(iii) of the Income Tax
Regulations; or (4) acquired the passenger automobile before September 28, 2017, and
placed it in service after 2019.
.04 Section 280F(c)(2) requires a reduction to the amount allowable as a deduction
to the lessee of a leased passenger automobile. Pursuant to § 280F(c)(3), 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 is accomplished by requiring the lessee to include in gross income an amount
determined by applying a formula to a dollar amount obtained from a table.
.05 Table 3 of this revenue procedure provides the dollar amount used by lessees of
passenger automobiles with a lease term beginning in 2021 to determine the income
inclusion amount for those passenger automobiles. The table provides dollar amounts
for a range of fair market values.
SECTION 3. SCOPE
.01 The limitations on depreciation deductions in Tables 1 and 2 in section 4.01(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 2021, and
continue to apply for each taxable year that the passenger automobile remains in
service.
.02 The dollar amount in Table 3 of this revenue procedure applies to leased
passenger automobiles with a lease term beginning in calendar year 2021, and
continues to apply for each taxable year during the lease.

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.03 See Rev. Proc. 2016-23, 2016-16 I.R.B. 581, for passenger automobiles placed
in service or leased during calendar year 2016, Rev. Proc. 2017-29, 2017-14 I.R.B.
1065, for passenger automobiles placed in service or leased during calendar year 2017,
Rev. Proc. 2018-25, 2018-18 I.R.B. 543, for passenger automobiles placed in service or
leased during calendar year 2018, Rev. Proc. 2019-26, 2019-24 I.R.B. 1323, for
passenger automobiles placed in service or leased during calendar year 2019, and Rev.
Proc. 2020-37, 2020-33 I.R.B. 381, for passenger automobiles placed in service or
leased during calendar year 2020.
SECTION 4. APPLICATION
.01 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
C-CPI-U automobile component for October of the preceding calendar year exceeds
the automobile component of the CPI (as defined in § 1(f)(4)) for October of 2017,
multiplied by the amount determined under § 1(f)(3)(B). The amount determined
under § 1(f)(3)(B) is the amount obtained by dividing the new vehicle component of the
C-CPI-U for calendar year 2016 by the new vehicle component of the CPI for calendar
year 2016, where the C-CPI-U and the CPI for calendar year 2016 means the average
of such amounts as of the close of the 12-month period ending on August 31, 2016.
Section 280F(d)(7)(B)(ii) defines the term "C-CPI-U automobile component" as the
automobile component of the Chained Consumer Price Index for All Urban Consumers
as described in § 1(f)(6). The product of the October 2017 CPI new vehicle component
(144.868) and the amount determined under § 1(f)(3)(B) (0.694370319) is 100.592.

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The new vehicle component of the C-CPI-U released in November 2020 was 102.878
for October 2020. The October 2020 C-CPI-U new vehicle component exceeded the
product of the October 2017 CPI new vehicle component and the amount determined
under § 1(f)(3)(B) by 2.286 (102.878 - 100.592). The percentage by which the C-CPI-U
new vehicle component for October 2020 exceeds the product of the new vehicle
component of the CPI for October of 2017 and the amount determined under
§ 1(f)(3)(B) is 2.273 percent (2.286/100.592 x 100%), the automobile price inflation
adjustment for 2021 for passenger automobiles. The dollar limitations in § 280F(a) are
therefore multiplied by a factor of 0.02273, and the resulting increases, after rounding to
the nearest $100, are added to the 2018 limitations to give the depreciation limitations
applicable to passenger automobiles for calendar year 2021. This adjustment applies to
all passenger automobiles that are placed in service in calendar year 2021.
(2) Amount of the limitation. Tables 1 and 2 of this revenue procedure contain the
depreciation limitation for each taxable year for passenger automobiles a taxpayer
placed in service during calendar year 2021. Use Table 1 for a passenger automobile
to which the § 168(k) additional first year depreciation deduction applies that is acquired
by the taxpayer after September 27, 2017, and placed in service by the taxpayer during
calendar year 2021; use Table 2 for a passenger automobile for which no § 168(k)
additional first year depreciation deduction applies.
REV. PROC. 2021-** TABLE 1

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES ACQUIRED
AFTER SEPTEMBER 27, 2017, AND PLACED IN SERVICE DURING CALENDAR
YEAR 2021, FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION
DEDUCTION APPLIES

Tax Year Amount
1st Tax Year $ 18,200

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2nd Tax Year $ 16,400
3rd Tax Year $ 9,800
Each Succeeding Year $ 5,860

REV. PROC. 2021-** TABLE 2

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES
PLACED IN SERVICE DURING CALENDAR YEAR 2021 FOR WHICH NO § 168(k)
ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES

Tax Year Amount
1st Tax Year $ 10,200
2nd Tax Year $ 16,400
3rd Tax Year $ 9,800
Each Succeeding Year $ 5,860

.02 Inclusions in Income of Lessees of Passenger Automobiles.
A taxpayer must follow the procedures in § 1.280F-7(a) for determining the
inclusion amounts for passenger automobiles with a lease term beginning in calendar
year 2021. In applying these procedures, lessees of passenger automobiles should use
Table 3 of this revenue procedure.

REV. PROC. 2021-** TABLE 3

DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES

WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2021

Fair Market Value of
Passenger Automobile

Tax Year During Lease

Over

Not Over

1
st

2
nd

3
rd

4
th

5
th
& later

$51,000 $52,000 0 0 1 0 1
52,000 53,000 1 1 1 2 2
53,000 54,000 1 2 2 3 4
54,000 55,000 1 3 3 5 5
55,000 56,000 2 3 5 6 6
56,000 57,000 2 4 6 7 8
57,000 58,000 2 5 7 8 10
58,000 59,000 3 5 8 10 11
59,000 60,000 3 6 9 11 13
60,000 62,000 3 7 11 13 15

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REV. PROC. 2021-** TABLE 3

DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES

WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2021

Fair Market Value of
Passenger Automobile

Tax Year During Lease

Over

Not Over

1
st

2
nd

3
rd

4
th

5
th
& later

62,000 64,000 4 9 13 15 18
64,000 66,000 5 10 15 18 21
66,000 68,000 5 12 17 21 24
68,000 70,000 6 13 20 23 27
70,000 72,000 7 14 22 26 30
72,000 74,000 7 16 24 29 33
74,000 76,000 8 18 26 31 36
76,000 78,000 9 19 28 34 39
78,000 80,000 9 21 30 37 42
80,000 85,000 11 23 34 41 48
85,000 90,000 12 27 40 47 55
90,000 95,000 14 30 45 55 62
95,000 100,000 16 34 50 61 70
100,000 110,000 18 40 58 71 81
110,000 120,000 21 47 70 83 97
120,000 130,000 25 54 81 96 112
130,000 140,000 28 62 91 110 127
140,000 150,000 31 69 103 123 141
150,000 160,000 35 76 114 136 157
160,000 170,000 38 84 124 149 172
170,000 180,000 41 91 135 163 187
180,000 190,000 45 98 146 176 202
190,000 200,000 48 106 157 188 218
200,000 210,000 51 113 168 202 232
210,000 220,000 55 120 179 215 247
220,000 230,000 58 128 190 227 263
230,000 240,000 61 135 201 241 278
240,000 and over 65 142 212 254 293

SECTION 5. EFFECTIVE DATE
This revenue procedure applies to passenger automobiles placed in service
during calendar year 2021 or with a lease term beginning in calendar year 2021.
SECTION 6. DRAFTING INFORMATION

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The principal author of this revenue procedure is Bernard P. Harvey of the Office
of Associate Chief Counsel (Income Tax & Accounting). For further information
regarding this revenue procedure, contact Mr. Harvey at (202) 317-4640 (not a toll-free
number).