🚗 Should I lease or buy a vehicle for my business?

As Navi Maraj puts it, should you purchase or lease a vehicle that is used for business? Navi Maraj, CPA gets this question all the time. Answering accurately requires knowing your exact facts and circumstances.

Vehicles with a gross vehicle weight rating (GVWR) of over 6,000 pounds qualify for heavy accelerated depreciation in Year 1. If you need (with a strong emphasis on need) a heavy vehicle with a gross vehicle weight rating of over 6,000 pounds and you're in a high tax bracket, then maybe it makes sense to acquire a vehicle to get a large depreciation write off in the first year.

To write off vehicle expenses, you must track your business use percentage. You can take the standard mileage rate. As Navi Maraj puts it, your tax deduction is 800 mil times the tax rate that the IRS is giving you for each mile that you drive, so 800 time the 67 cents is $536.

However, if you use the actual expense method, Navi Maraj, CPA can do a little bit more. He can deduct depreciation. Now, his depreciation is going to be accelerated. This calculator compares the massive Year 1 savings of buying against the reality of depreciation recapture.

Compare your lease offer against standard financing. If you finance the purchase, you deduct the business portion of the interest expense. If you lease, your payment forms the basis of the actual expense deduction.

Remember that if at the end of the year, specifically year 3, you sold the vehicle that you purchased, you'd be subject to depreciation recapture. You have to pay income taxes back to the IRS on that inflated gain, which mathematically evens out the net cash outlay between leasing and buying by Year 3.