We often get this question from clients: "Should I lease or buy a vehicle?" The answer is - as it is with so many financial questions with tax implications - it depends on a variety of interrelated factors. We hate to answer a question with more questions, but here are some items we would need to discuss such as:
- How many miles do you drive per year?
- How many of those miles are business miles?
- How expensive will the purchased/leased vehicle be?
- Will the vehicle be purchased/leased by you as an individual or by a business?
- How long do you plan on keeping the vehicle?
- Do you have a particular vehicle or type of vehicle in mind?
- How large of a down payment are you comfortable with?
- How large of a monthly payment works for you?
Once these and other questions are answered, we need to look at the numbers. Here are the key financing and tax considerations in making the lease vs. buy decision.
- Down payment (usually lower for lease)
- Monthly payment (usually lower for lease)
- Interest rate on loan
- Maintenance and repair costs
- Potentially building equity in the vehicle via purchase
- Paying sales tax up front in a purchase versus monthly payments in a lease.
- Using actual costs versus cents per mile (57.5 cents for 2015) to determine deductible business use of the vehicle.
- Depreciation of purchased vehicle - there are limits, for example, on "luxury" vehicles.
Also, there are factors which cannot be quantified as dollars and cents issues. These include:
- Trade-in hassles
- Desire to have a new car every two or three years
- More flexibility when purchasing
- Pride of ownership, etc.
As you can see, the lease versus buy question is not a simple one. For guidance on determining whether or not to lease or buy a vehicle, contact Gary A. Grossman, CPA, CFP.
Gary A. Grossman, MS, CPA, CFP is a partner at Grossman St. Amour Certified Public Accountants, PLLC. He specializes in financial planning and tax planning for corporations, partnerships and individuals.