Buying out a lease - 1099-MISC

[1099newbie85]

Hey everyone,

So I bought out a lease in October for vehicle. I financed the balance of the lease with a federal credit union loan. The vehicle is partially used for 1099 contracting work (miles deducted accordingly). Can I deduct the vehicle in another way? Like buying out the lease costs, registration, etc? It is only used roughly 10% for 1099 purposes.

Thank you!

[KarenJ2 · Accepted solution]

You can deduct the business part of the interest on your car loan.  You can either declare actual expenses or mileage.

Automobiles

As a small business owner, you can deduct automobile expenses for visits to clients, customers or travel to business meetings away from your regular workplace. If you have a home office, a drive from your home to a supplier and back home again is a 100% deductible business expense.

When figuring expenses, you may choose between taking the standard mileage rate (which generally changes every six months to a year), or deducting your actual expenses for items such as gas, oil changes, tires, repairs, preventive maintenance, insurance and registration.

• If you choose to deduct your actual expenses in the year you start using your car for business, you can't switch to the standard mileage rate later.
• If you choose the standard mileage method first, you can switch to actual expenses in a later year.

In choosing the method that yields the higher deduction, the number of miles you drive each year is probably the most important factor.

• If you do a lot of driving, then the standard mileage rate method may work better for you.
• Automobiles that consume more gas may let you claim a higher deduction using the actual expense method.

If you decide to deduct your actual expenses, you must keep a log of your trips noting the date, the miles driven, and the purpose of each trip. Try to keep a record of your trips as they occur, when it's easier to keep track of the details.

• Keep a record of your gas purchases, insurance and registration payments, and repairs and maintenance costs.
• If the IRS ever audits you, you will need to provide written documentation to substantiate your deduction.

If you're self employed, even if you claim the standard mileage rate, you can also deduct:

• the business part of interest on your car loan,
• state and local property taxes, and
• parking fees and tolls.

[1099newbie85]

Thank you!

[vadim.yarovoy]

My wife leased her car since 3/16/2016, and we bought it (cash) at lease end (3/19/2019). The car is 80% biz use. TurboTax asks us "When did u acquire the car?" in biz section, I try entering 3/19/19 but it shows error "please enter a date on or before you started using the vehicle for biz (3/16/16)". How should we handle it?

[KrisD15]

You should have been taking the Standard Mileage Deduction for the vehicle. For the leased vehicle, report that you stopped using it (the leased vehicle) on 03-19-2019. 

Next, enter the vehicle as if it is a new asset and report that you started using it on 03-19-2019. 

Your new basis in the vehicle (which you will need to know when you sell or stop using it) is the cash you paid at lease end, less the depreciation equivalent for each year it was used as a leased vehicle. 

The depreciation equivalent is the depreciation built into the standard rate. 

Take the number of miles you reported for each year and multiply that by the rate of that year. Subtract that total from your purchase price. That amount is your basis for the vehicle going forward. 

2016    .24/mile

2017    .25/mile

2018    .25/mile

2019    .26/mile