turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

davido
New Member

Is it better to get a leased car or buy a car and make loan payments?

90% of our new second car are will be used for business. Is there a difference in deductions if we make car payments to own the car or if we lease a car? Or are there in general advantages in a car lease? Is a down payment on a car entered as a car expense deductible? 

1 Best answer

Accepted Solutions
MargaretL
Expert Alumni

Is it better to get a leased car or buy a car and make loan payments?

For tax purposes, leasing may seem more advantageous when you use your vehicle for business; although it is your choice and I recommend that you enter both "choices" in TurboTax and see which one specifically helps you.   

The actual deductions depend whether you will choose to use Standard Mile method or Actual Expenses method when deducting your car...A down payment is never tax deductible (for purchased or leased cars) because the amount simply reduces your original cost.

If you choose to use a Standard Mileage Rate (54 cents per mile for 2016) - your car operating expenses (gas, oil, tires, lease payments etc.) are "sort of" included in that rate; so all you deduct is miles driven for business purposes at the rate given by the IRS

If you use Actual Expenses method - leasing a car may be more advantageous... you can deduct your actual car expenses such as lease payments, oil, gas repairs but you cannot depreciate the car. Since you will use 90% for business, 90% of your actual costs will be deductible. If you purchase the car, you can't deduct the payments, but you can depreciate your car and can deduct the interest on the car's loan based, of course, on the percentage of your business use. The reason why I think leasing is better, is because you may have a taxable gain due to depreciation when you ever dispose/stop using the car for business; if you just return the leased car back to the dealer, there is no taxable gain. 

I found this article that I like; it gives detail comparison on your topic: http://blog.turbotax.intuit.com/tax-tips/buy-or-lease-your-new-business-vehicle-67/

In TurboTax, when general business information and business income is entered, you will arrive at the Business Summary Screen. Business Use of Vehicles is a section to enter your car expenses.  The program will ask you some general questions about the car, business miles for the car. You will be able to enter your expenses and see which method is more beneficial.

View solution in original post

1 Reply
MargaretL
Expert Alumni

Is it better to get a leased car or buy a car and make loan payments?

For tax purposes, leasing may seem more advantageous when you use your vehicle for business; although it is your choice and I recommend that you enter both "choices" in TurboTax and see which one specifically helps you.   

The actual deductions depend whether you will choose to use Standard Mile method or Actual Expenses method when deducting your car...A down payment is never tax deductible (for purchased or leased cars) because the amount simply reduces your original cost.

If you choose to use a Standard Mileage Rate (54 cents per mile for 2016) - your car operating expenses (gas, oil, tires, lease payments etc.) are "sort of" included in that rate; so all you deduct is miles driven for business purposes at the rate given by the IRS

If you use Actual Expenses method - leasing a car may be more advantageous... you can deduct your actual car expenses such as lease payments, oil, gas repairs but you cannot depreciate the car. Since you will use 90% for business, 90% of your actual costs will be deductible. If you purchase the car, you can't deduct the payments, but you can depreciate your car and can deduct the interest on the car's loan based, of course, on the percentage of your business use. The reason why I think leasing is better, is because you may have a taxable gain due to depreciation when you ever dispose/stop using the car for business; if you just return the leased car back to the dealer, there is no taxable gain. 

I found this article that I like; it gives detail comparison on your topic: http://blog.turbotax.intuit.com/tax-tips/buy-or-lease-your-new-business-vehicle-67/

In TurboTax, when general business information and business income is entered, you will arrive at the Business Summary Screen. Business Use of Vehicles is a section to enter your car expenses.  The program will ask you some general questions about the car, business miles for the car. You will be able to enter your expenses and see which method is more beneficial.

Use your Intuit Account to sign in to TurboTax.
By selecting Sign in, you agree to our Terms and acknowledge our Privacy Statement.
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
message box icon

Ready to start your taxes?

Hand off your taxes, get expert help, or do it yourself.

See Pricing

Related Content

Manage cookies