Vehicle purchases are one of the largest expenses for most families. With an increase in people choosing to lease instead of buy, what are the differences? As with most decisions in life, taxes should only be one of the considerations. A few of the non-tax considerations on buying or leasing a business vehicle: number of miles you drive each year, how long you keep a car, how much do you want to spend on your monthly payments?
You may be able to deduct your lease payment, prorated according to how much you use the car for business. For example, if your lease payment is $300 a month and you drive your car for business 50 percent of the time, you can deduct $150 a month as a business expense. There’s one catch though. If the car exceeds a certain value, you must subtract an “income inclusion” amount from your deduction. This is an additional amount of income you may have to report if you lease a vehicle or other property for business purposes. You must report the inclusion amount if the fair market value of the leased asset exceeds a certain threshold ($50,000 for a vehicle first leased in 2018). The inclusion amount differs depending on how long you’ve leased your car. Leasing offers tax advantages for self-employed people who drive for work, especially for more expensive cars.
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