Example. On January 17, 1997, you leased a car for 3 years and placed it in service for use in your business. The car had a fair market value of $32,250 on the first day of the lease term. You use the car 75% for business and 25% for personal purposes during each year of the lease. Assuming you continue to use the car 75% for business, you use Appendix B-3 to arrive at the following inclusion amounts for each year of the lease:

Leased car changed from business to personal use. If you lease a car for business use and, in a later year, change it to personal use, follow the rules explained earlier under Figuring the inclusion amount. For the tax year in which you stop using the car for business, use the dollar amount for the previous tax year. Prorate the dollar amount for the number of days in the lease term that fall within the tax year.

Example. On August 16, 1998, Will leased an electric car with a fair market value of $58,600 for 3 years. He used the car exclusively in his own data processing business. On November 5, 1999, Will closed his business and went to work for a company where he is not required to use a car for business. Using Appendix C-2, Will computed his inclusion amount for 1998 and 1999 as shown in the following table.

Leased car changed from personal to business use. If you lease a car for personal use and, in a later year, change it to business use, you must determine the car's fair market value on the date of conversion. Then figure the inclusion amount using the rules explained earlier under Figuring the inclusion amount. Use the fair market value on the date of conversion.

Example. In March 1997, Janice leased a car for 4 years for personal use. On June 1, 1999, she started working as a self-employed advertising consultant and started using the leased car for business purposes. Her records show that her business use for June 1 through December 31 was 60%. To figure her inclusion amount for 1999, Janice obtained an appraisal from an independent car leasing company that showed the fair market value of her 1997 car on June 1, 1999, was $18,650. Using Appendix B-1, Janice computed her inclusion amount for 1999 as shown in the following table.

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