Should I Buy or Lease My Car or Truck?

There are many factors that must be considered in deciding whether to buy or lease a car for which you will take business deductions. Obviously, the tax implications look for what option will provide you with the lowest after-tax cost of that business use.

However, other factors that should be considered include:

  1. How many miles per year will you drive? (Car leases usually specify a "target" mileage of 12,000-15,000 miles a year, and anything over that may incur sizable per-mile charges.)
  2. How rough are you on a car? (If you lease, expect that the lessor will charge you for any damage above normal "wear and tear" for the targeted mileage. If you drive a lot in rural areas, haul equipment or tools, park in areas where vandalism is prevalent, or are lazy about maintenance, expect to pay for it when you turn in the leased vehicle. Realize that a leased car may also cost you additional money in insurance, since most standard auto policies do not pay the full replacement value you will be responsible for if the car is stolen or totalled.)
  3. How much do you like to spend on a car, and how long will you likely keep it? (If you like to drive a new, expensive car, and usually trade in a car every two or three years, leasing may be your best option. You pay only for the period of time you actually use the car, and don't have the problem of selling or trading it in. And the limitations imposed on deducting lease payments on higher priced cars are not as strict as the depreciation limitations on cars you own.)
Once you have weighed these factors, do a side by side comparison of what the costs will be, less what portion will be deductible and what the tax savings would be from those deductions. The result is your actual cost of operation.

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