Rev. Proc. 77-36

Section 1. Purpose

The purpose of this Revenue Procedure is to clarify Rev. Proc. 74-23, 1974-2 C.B. 476, as amplified by Rev. Proc. 75-3, 1975-1 C.B. 643, which provides an optional simplified method for computing allowable deductions for the costs of operating passenger vehicles for business purposes by employees and self-employed individuals.

Sec. 2. Implementation

Sec. 3.01 of Rev. Proc. 74-23, describes the optional method of computing deductible operating costs and state in part, "[t]he rate prescribed herein does not affect a deduction for interest relating to the automobile which is allowable under section 163 [of the Internal Revenue Code of 1954] nor deductions for State and local taxes (other than those included in the cost of gasoline) otherwise allowable under section 164." This statement is intended to mean that interest and State and local taxes (other than gasoline) are deductible in addition to the amount of passenger vehicle expenses determined by use of the standard mileage rate. However, if the passenger vehicle is operated less than 100 percent for business purposes, an allocation is required to determine the business and nonbusiness portion of such expenses. That portion attributable directly to operation of the vehicle for business purposes may be deducted from gross income in arriving at adjusted gross income by an employee under section 62(2)(C) of the Code and by a self-employed individual under section 62(1). The remainder may be deducted from adjusted gross income in arriving at taxable income, provided the taxpayer elects to itemize deductions.

Sec. 3. Effect on Other Documents

Rev. Proc. 74-23 is clarified.