Byron entered into a 36-month lease of an automobile on March 1, year 1. He used it 80 percent for business and 20 percent for personal use. In year 2 he used it 90 percent for business and 10 percent for personal use. The fair market value of the automobile at the inception of the lease was $40,000. Byron made 10 monthly lease payments of $500 in year 1 and 12 monthly payments in year 2.

a. What amount of the lease payments is deductible for year 1? What amount is deductible for year 2?

b. What is the lease inclusion amount that Byron must include in his gross income for year 1? What amount must he include in income for year 2?

AppendixLO1