Auto leasing tax deductions


M

Mahesh

Folks,

I have been using the standard mileage rate for my 11 year old auto.
80% of the approx 8000 miles I drive are for my rental business
purposes (other 20 % being personal). I am now looking into leasing a
car.

Can someone explain to me the the different expenses that can be
deducted using a) the standard mileage method b) actual method in the
case of a lease purchase.

Lets assume my monthly lease if is about $500 +tax and all standard
maintenance is covered during the lease, which of the above two
methods would prove to provide a higher deduction?

Thanks.
 
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A

Alan

Folks,

I have been using the standard mileage rate for my 11 year old auto.
80% of the approx 8000 miles I drive are for my rental business
purposes (other 20 % being personal). I am now looking into leasing a
car.

Can someone explain to me the the different expenses that can be
deducted using a) the standard mileage method b) actual method in the
case of a lease purchase.

Lets assume my monthly lease if is about $500 +tax and all standard
maintenance is covered during the lease, which of the above two
methods would prove to provide a higher deduction?

Thanks.
This a no-brainer.

Using today's mileage rate of 55.5 cents and assuming it exists for a
full tax year, your deductible expense for that 12 months is $3552 plus
parking fees and tolls that are business related.

Assuming a 6% tax rate, your cost of the lease is $530 x 12 = $6360. 80%
of $6360 is $5088. You may not be able to deduct the whole $5088. This
will depend on the FMV of the vehicle. The FMV is typically the
capitalized cost on your lease agreement. Rather than go into how you
might have to adjust your deduction, you can read about it with examples
in IRS Pub 463 pages 23 and 24. You would only have to make an
adjustment if the car has a FMV greater than $18,500 (2010 value).

If you look at the Pub and the table in Appendix A where you get the
amount of the adjustment, you will see that the amounts are not very
large. Therefore, deducting the business portion of lease payments will
exceed the standard mileage method. In addition you can also deduct the
business portion of actual expenses of gas and oil, parking, tolls,
insurance, registration, personal property taxes and any maintenance not
provided by the lessor. See Pub 463 for a more detailed list.
 

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