Tax Tips Should You Buy or Lease A New Business Vehicle? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxBlogTeam Published Feb 21, 2024 - [Updated Apr 26, 2024] 4 min read Reviewed by Katharina Reekmans, Enrolled Agent Recently I had dinner with friends who run a business, and the conversation turned to buying new cars. The “buy versus lease” question was asked of me, the so-called tax expert at the table. As always, I don’t answer any tax questions until I have time to double-check the tax law. I told them to keep an eye out for my latest blog. So, to all who are wondering…here it is! As with most decisions in life, taxes should only be one of the considerations. Here are a few of the non-tax considerations on buying or leasing a business vehicle: Number of miles you drive each year: leased cars are often charged extra fees for miles driven over 10,000 or 12,000/year. How long do you keep a car: do you get a new car every 3-4 years or keep it until it’s junk? How much do you want to spend on your monthly payments: lease payments are usually quite a bit less than monthly payments on a car loan. Now let’s talk about the tax benefits for the self-employed taxpayer and his or her car used for business. With both purchased and leased cars, you can deduct the related expenses by using the standard mileage rate or actual expenses. Note: If you own the vehicle, you can choose the standard mileage rate in the first year and switch to the actual expense method in a later year if it becomes more favorable. If you lease a vehicle, you may also choose the standard mileage rate in the first year, but once you use the standard mileage rate, you must use it for the life of the lease. Keep in mind that whether you lease or own your car used for business, you have to pick between standard mileage rate (deducting business miles driven) and claiming actual expenses (which would include car payments or lease payments. With the standard mileage rate, your business mile deduction will be based on 67 cents per mile for 2024 (65.5 cents per mile in 2023). You can also deduct business-related parking fees and tolls. For the purchased vehicle, you may also be able to deduct a portion of the interest on your car loan. Under the actual expense rules, for both leased and purchased vehicles, you can deduct the business percentage of your gasoline, oil, insurance, garage rent, parking & registration fees, lease or rental fees, repairs, tires, loan interest, etc. Purchased vs. Leased Vehicle Expenses Some expenses differ between purchased and leased vehicles using the actual expense rules, and because you don’t own a leased vehicle, you can’t depreciate it. However, you can deduct the business percentage of your lease payments. So if your yearly lease payment is $4,200 ($350/month) and your business use percentage is 80%, you may be able to deduct $3,360 on your tax return for that year. There is one hitch: since the tax code limits the depreciation on “luxury” cars, it also limits (to a very small degree) lease payments on such a car. It’s called a “lease inclusion amount,” and it reduces the deductible lease payments. The higher the original value of the car, the greater the amount. As the price goes up on the car, leasing usually becomes more preferable. But don’t forget if you purchased the vehicle, you can also deduct the interest on the vehicle’s loan based on the percentage of business use. If you purchased a car this year to transport passengers for self-employment jobs like Uber and Lyft and you bought a sports utility vehicle, you may be able to deduct up to $30,500 for 2024 ($28,900 in 2023) of the cost of the vehicle if you use it more than 50% for your business. If you purchased a car for your business, you may also be able to deduct up to the depreciation deduction allowed if your business use is more than 50%. There is one more difference between buying and leasing a business vehicle, which is the disposition of the vehicle. When you dispose of a business vehicle that you own, there may be a taxable gain or deductible loss. The portion of any gain that is due to depreciation will be taxed as ordinary income. When you return your leased car to the dealer, there is no taxable gain or loss. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed. Get started now Previous Post Is My State Tax Refund Taxable? Next Post Tax Credits 101: What They Are & How They Work Written by TurboTaxBlogTeam More from TurboTaxBlogTeam 22 responses to “Should You Buy or Lease A New Business Vehicle?” I am a rural mail carrier and I have to have a back up vehicle whenever a postal vehicle is not available. how do I claim this for a leased vehicle? I am not always reimbursed mileage. Reply I like how you mentioned that owning your commercial vehicles can be beneficial for those who drive more than 10,000 miles a year, because there are no extra fees. I agree that purchasing commercial trucks for your business is beneficial because you have complete ownership of your vehicle and have the liberty to drive where, how much, and how you’d like. My friend owns a growing business, and is trying to decide whether purchasing trucks for his company fleet would be worth it. After reading this, I’ll definitely recommend that he invest in a commercial truck business in his area that can provide him with the type of vehicle he needs to own for his company to run smoothly. Reply It sure got me when you said that it is better to buy a car if the person will be driving the car for more than 10,000 miles each year since there will be an additional charge if I decide to lease one. Not only this but considering our business, I do not think I will find a leased car that can handle it. We need a truck that can handle food services since we will have to deliver them to far cities and towns. Reply What if I purchased the vehicle out right from a private party could a bill of sale be used is there any deductions I could be aware of here? Reply I’m often reimbursed for mileage at the standard Gov’t rate. Does this affect how I would calculate business use on a leased vehicle? Thanks Reply I was reading another article saying i can claim up to 100% of the value of heavy SUV (GVWR over 6,000 lb) as 1st yr bonus depreciation. Is that true? Can we use this case as an example: Purchased car (GVWR over 6,000 lb) at $80,000 Use it for 100% business According to your article, I should be able to write off $10,000 + $25,000 1st yr bonus depreciation, making total of $35,000 write-offs. That is a huge difference from 100% write-off. Please help me to clarify this. Reply When buying or leasing for business – does it need to be bought on company’s name or can we buy it on major stakeholder’s name like owner / director of the firm? Reply Hello, This is shown as a March 9, 2018 posting yet there are comments from previous years. Seems like a re-post. What concerns me and confuses me is this statement. “With the standard mileage rate, your business mile deduction will be based on 53.5 cents per mile for 2017 (down from 54 cents in 2016).” Isn’t there a new law eliminating the mileage deductions all together? Eliminating it from Jan. 1st 2018 – Dec. 2025. Turbo Tax shouldn’t send conflicting blog post. Please clarify what is the tax law on mileage deductions. Thank you JP Reply Hi Jonpaul, There are many changes in the tax rules for 2018, but the Standard Mileage Rate is still applicable. Please see: https://www.irs.gov/newsroom/standard-mileage-rates-for-2018-up-from-rates-for-2017 Thank you, ASB Reply That is for unreimbursed employee expenses. If you file a schedule c then you can deduct your mileage. If you are a statutory employee you can deduct your mileage as well. Reply You have shared some outstanding tips and the whole process to buy and lease the vehicle and my little bit confusing is solved after reading the post. Reply Nice blog about to acquire a car on lease and know about a car servicing visit our page. Reply What’s the advantage of leasing vs buying if I use the vehicle only for pest control? Reply Can someone tell me if I can deduct the down payment on our leased business car? We were required to put 5K down. I’m not sure if this would be concidered a “pre-payment”, or if I should include this amount with the lease payments or if there is somewhere else I should enter it (on Turbo tax) Reply Employee deductions are different from the deductions a business owner would take. For example, a pool cleaning business can expense the truck necessary for cleaning pools. However as an employee, you probably need a vehicle to commute to and from work. Since personal expenses like vehicles and homes cannot be deducted, I would consider the car a personal necessity. As the employer is already taking a deduction, I would avoid double dipping. Reply My husband is an employee at a car dealer, he is required to lease a BMW and company pays part of his lease payment. Can we take a tax deduction for this vehicle? Reply I am a licensed family child care provider and am trying to decide whether to purchase or lease a vehicle..looking at this it seems that leasing makes a LOT more sense since it will ONLY be for business use. I also want to be sure I am correct, the payment percentage is a write off as well as the mileage and insurance on a leased vehicle. Reply You can choose to use the standard mileage rate or actual expenses – but be careful not to use both. Reply What’s the deductions for a $100,000 vehicle? If leased. Reply sdfw Reply I am not experiencing any trouble, the text is nicely in the middle of the screen. Have you checked your screen settings, perhaps there is something wrong in there? Reply I don’t know whether it’s just me or if everybody else experiencing problems with your site. It appears as though some of the text in your posts are running off the screen. Can someone else please comment and let me know if this is happening to them as well? This might be a issue with my web browser because I’ve had this happen previously. Cheers First off I would like to say awesome blog! I had a quick question that I’d like to ask if you don’t mind. I was interested to find out how you center yourself and clear your thoughts before writing. I’ve had a tough time clearing my thoughts in getting my thoughts out there. I do enjoy writing but it just seems like the first 10 to 15 minutes are generally lost simply just trying to figure out how to begin. Any ideas or tips? Thanks! 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I am a rural mail carrier and I have to have a back up vehicle whenever a postal vehicle is not available. how do I claim this for a leased vehicle? I am not always reimbursed mileage. Reply
I like how you mentioned that owning your commercial vehicles can be beneficial for those who drive more than 10,000 miles a year, because there are no extra fees. I agree that purchasing commercial trucks for your business is beneficial because you have complete ownership of your vehicle and have the liberty to drive where, how much, and how you’d like. My friend owns a growing business, and is trying to decide whether purchasing trucks for his company fleet would be worth it. After reading this, I’ll definitely recommend that he invest in a commercial truck business in his area that can provide him with the type of vehicle he needs to own for his company to run smoothly. Reply
It sure got me when you said that it is better to buy a car if the person will be driving the car for more than 10,000 miles each year since there will be an additional charge if I decide to lease one. Not only this but considering our business, I do not think I will find a leased car that can handle it. We need a truck that can handle food services since we will have to deliver them to far cities and towns. Reply
What if I purchased the vehicle out right from a private party could a bill of sale be used is there any deductions I could be aware of here? Reply
I’m often reimbursed for mileage at the standard Gov’t rate. Does this affect how I would calculate business use on a leased vehicle? Thanks Reply
I was reading another article saying i can claim up to 100% of the value of heavy SUV (GVWR over 6,000 lb) as 1st yr bonus depreciation. Is that true? Can we use this case as an example: Purchased car (GVWR over 6,000 lb) at $80,000 Use it for 100% business According to your article, I should be able to write off $10,000 + $25,000 1st yr bonus depreciation, making total of $35,000 write-offs. That is a huge difference from 100% write-off. Please help me to clarify this. Reply
When buying or leasing for business – does it need to be bought on company’s name or can we buy it on major stakeholder’s name like owner / director of the firm? Reply
Hello, This is shown as a March 9, 2018 posting yet there are comments from previous years. Seems like a re-post. What concerns me and confuses me is this statement. “With the standard mileage rate, your business mile deduction will be based on 53.5 cents per mile for 2017 (down from 54 cents in 2016).” Isn’t there a new law eliminating the mileage deductions all together? Eliminating it from Jan. 1st 2018 – Dec. 2025. Turbo Tax shouldn’t send conflicting blog post. Please clarify what is the tax law on mileage deductions. Thank you JP Reply
Hi Jonpaul, There are many changes in the tax rules for 2018, but the Standard Mileage Rate is still applicable. Please see: https://www.irs.gov/newsroom/standard-mileage-rates-for-2018-up-from-rates-for-2017 Thank you, ASB Reply
That is for unreimbursed employee expenses. If you file a schedule c then you can deduct your mileage. If you are a statutory employee you can deduct your mileage as well. Reply
You have shared some outstanding tips and the whole process to buy and lease the vehicle and my little bit confusing is solved after reading the post. Reply
Can someone tell me if I can deduct the down payment on our leased business car? We were required to put 5K down. I’m not sure if this would be concidered a “pre-payment”, or if I should include this amount with the lease payments or if there is somewhere else I should enter it (on Turbo tax) Reply
Employee deductions are different from the deductions a business owner would take. For example, a pool cleaning business can expense the truck necessary for cleaning pools. However as an employee, you probably need a vehicle to commute to and from work. Since personal expenses like vehicles and homes cannot be deducted, I would consider the car a personal necessity. As the employer is already taking a deduction, I would avoid double dipping. Reply
My husband is an employee at a car dealer, he is required to lease a BMW and company pays part of his lease payment. Can we take a tax deduction for this vehicle? Reply
I am a licensed family child care provider and am trying to decide whether to purchase or lease a vehicle..looking at this it seems that leasing makes a LOT more sense since it will ONLY be for business use. I also want to be sure I am correct, the payment percentage is a write off as well as the mileage and insurance on a leased vehicle. Reply
You can choose to use the standard mileage rate or actual expenses – but be careful not to use both. Reply
I am not experiencing any trouble, the text is nicely in the middle of the screen. Have you checked your screen settings, perhaps there is something wrong in there? Reply
I don’t know whether it’s just me or if everybody else experiencing problems with your site. It appears as though some of the text in your posts are running off the screen. Can someone else please comment and let me know if this is happening to them as well? This might be a issue with my web browser because I’ve had this happen previously. Cheers First off I would like to say awesome blog! I had a quick question that I’d like to ask if you don’t mind. I was interested to find out how you center yourself and clear your thoughts before writing. I’ve had a tough time clearing my thoughts in getting my thoughts out there. I do enjoy writing but it just seems like the first 10 to 15 minutes are generally lost simply just trying to figure out how to begin. Any ideas or tips? Thanks! Reply