Car Lease Buyout / Expenses

[kev103]

I bought out my car lease in April. I am still using it for business. Is it correct that I have to enter the car twice in my business expenses, once from January through the April date I did the buyout AND once for the "used car" that I am now continuing to use for my business?

Additionally, are ALL expenses that I incurred while I still had the lease deductible?  I needed to buy new tires in March, then the buyout occurred in April. I used actual expenses while I had the lease.

Also, can I now use the standard mileage deduction for the miles I drove after the lease buyout? Or must I continue to use the actual expenses as I did when I had the lease? I prefer to use the mileage rate if I can.

[KrisD15]

That is correct. 

Once you bought-out the lease, it is as if you purchased a totally different vehicle.

Dispose of the leased vehicle, this will be a non-taxable event. 

Enter the vehicle as if you just purchased it used. 

When you dispose THIS vehicle, you may have a taxable event since depreciation you claim may be needed to be "recaptured".

Once the vehicle is entered the second time, you may choose Standard Mileage or Actual Expenses.

If you use the Standard Rate be sure to keep a log for your miles driven and the miles you claim on your tax returns. Part of the Standard Mileage Rate includes "depreciation equivalent" which is factored in when the vehicle is sold. 

[kev103]

Thank you for this is great information.

Additionally, are ALL the expenses up to the date of the lease buyout deductible while the car was still under the lease? I had to purchase new tires in that timeframe.

[KrisD15]

Yes, since the tires were purchased before the lease buy-out, and you were using actual expenses, the tires would be an expense for tax year 2023.