From the tax stand point, which generates a larger deduction, leasing or purchasing a vehicle?
While there are economic lease vs. buy comparisons that determine the most cost effective way to own a vehicle from a cash flow stand point, little attention is given to the tax advantages of leasing a passenger vehicle. The Tax Reform Act of 1984 drastically reduced the amount of depreciation deduction allowed for luxury passenger vehicles used in business. Currently (for 2000) the maximum deductions available for non-electric luxury vehicles are $3,060 – first year, $4,900 – second year, $2,950 – third year, $1,775 each year thereafter until fully depreciated. By contrast, the deduction for a leased vehicle is 100% of the lease cost less a relatively small add-back (Income Inclusion Amount) that “attempts” to reduce the lease deduction to the same level as depreciation. In most cases, the deduction for the leased vehicle will far surpass the deduction for depreciation. An exception to this general rule is available for those vehicles not classified as “passenger automobiles”. See fol
