Leasing Cars Rant

Check with your CPA about the benefits of leasing vs. buying for the self-employed. If I remember correctly, you run your own business like I do. It was worth the effort in my case.

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Leasing looks like a scam to me. I'd have to agree with you.

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humble, but hungry.

 

If you own a small business, and the car is for 'business use' it can be an advantage to lease -- like grummet said, check with your CPA.

The rule was, (4 years ago when I had the class) since the car is a capital purchase, you could only depreciate a certain part of the value of your car, and it had to be over several years. (In other words, you were limited as to how much of the car you could write off on your taxes).

If you lease a car, it's an ongoing expense, so you can write off the entire payment as a business expense. (Plus you don't have to figure out the &%#$% depreciation -- or pay your accountant to do it).

If I remember correctly, it worked out to $200ish per month through depreciation, or the full lease payment. In your case, that could be $4800, or $2400 more business expense written off a year by leasing. If you own your own business, it's worth looking into.

Otherwise, I don't know why an individual would do it. My aunt tried it, figuring she wore out her cars quickly, then had to pay a big penalty because she drove 14,000 miles more than what was 'allowed,' in the two years.

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Stay Cool...

 

Leasing- Can write all off interest as a business expense (or if not totally for business as a % of business use).

Buying- You can depreciate it over the life (5 years). A car is a listed asset so you can't use some forms of accelerated depreciation. DC was right that there is a "Luxury Car" limit as to the amount that can be depriciated, based on the cars value (ie a business owner can't buy a porsche to sport around in and depreciate it over the luxury limit). I'm not up to date but it is probaly for cars over 30-35K.

Using both examples you can still write off mileage or the actual expenses (gas, repairs, etc). However once you go to actual costs you can't change back the next year.

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Here's a better deal for you, Jeff--if you're a business owner. I think you mentioned that you had an antique shop and I know you're a musician, so this would be good for you to haul things around (although they aren't the most "green" vehicles, and you usually see "Cowboys" driving them)

If your car is at about that spot where it's been "driven into the ground," then try and make it last towards the end of the year. Around August or so, start watching the newspapers for car deals, but remember, those deals are a legal type of "bait and switch." What makes them legal is that they do offer that "great deal," but usually, if you look at the fine print, it will say, "one only at this price." Those are the deals you want to purchase. The dealership will sell that vehicle, and if the buyer doesn't finance through the dealer, they may even take a loss on that sale, but that one ad will bring in people all week, so it's written off as advertising expense. You have to get up early on a Saturday (when the new ads come out) and be the first one at the dealership. Even then, you may hear the story, "we placed the ad Wednesday to come out in today's paper, but we sold that vehicle yesterday." That's part of the game, but you CAN find one of the deals if you work at it, and you can save thousands on your purchase if you do.

For tax purposes, you want to find either a truck or a vehicle built on a truck frame (SUV)that is over 6000 lbs gross vehicle weight (the weight of the vehicle when it's fully loaded)--you can start your shopping now by scouring the automaker web sites to find out which vehicles qualify. I can tell you right now that a chevy/GMC 1/2 ton (1500 model) extended cab pickup will be slightly over the 6000 lbs. while a Ford extended cab 1/2 ton (F 150 model) is just slightly under. Any of the big three 3/4 or 1 ton models will qualify. For you, I'd suggest a Ford F-250 with a diesel engine. The diesel with an automatic transmission will be a $5,000 option--it's damn pricey, but you'll have a hard time driving it into the ground; they last forever. I'm driving a GMC extended cab right now, and I really like it. I wish I would have gotten the Ford though. All three of the American auto makers are making exceptional trucks right now. I personally think the chevy/GMC's are the most attractive--inside and out--but I think the Ford is the best bargain when comparing similar engines, options, and payloads. I also know my ass would rather sit for four hours behind the steering wheel of a Ford than my GMC--they're a lot more comfy. Finally, I like to use my cruise control, and with the Ford, you can actually drive with it. (accelerate, coast, resume)--it's very smooth where the chevy/GMC is very choppy.

Anyway, now to the meat of the matter. When you own your own business, you can either use actual expenses or the standard mileage rate to deduct auto expenses. Actual Expenses uses depreciation for your vehicle. There is a somewhat little known loophole in the code that allows you to use the section 179 deduction for you business vehicle. The section 179 deduction is a yearly deduction on capital expenditures, and it's value for this tax year (2000) is $20,000! The deduction has severe limitations for passenger automobiles--such that there is no reason to use it; you come out ahead if you just use the regular depreciation tables. However, the IRS defines a passenger vehicle as a car or light truck with a gross vehicle weight of 6,000 lbs or less. Therefore, you can use the full section 179 deduction for this new vehicle. There are some things to consider though:

You need to use the vehicle for at least 50% business use.

You can only use the deduction in the year in which the vehicle is placed in service (purchased)

The deduction counts as depreciation, so if you turn around and sell it next year, you would have recapture which is considered ordinary income (purchase price minus depreciation equals basis--the difference between the selling price over and above your depreciated basis would count as income)

You will never be able to use the standard mileage rate on this vehicle--you must use actual expenses for the remainder of it's useful life

Anyway, you could probably find a nice F-250 XLT extended cab diesel for around $25K on sale (I saw an ad for one this weekend). You could put down 10% to buy this truck on December 31st of this year, and still take the full $20,000 deduction this year. If you don't need the deduction, I certainly wouldn't recommend it, but if you had a good year financially, it's something that should be hard to refuse. If you're in the 31% marginal tax bracket, you'll save about $9,000 this year in taxes by taking this deduction (that's including the self employment tax).

That's not a bad deal to consider--the tax saving alone would pay for the down payment and the first year or so of vehicle payments. It's not free money, but it defers taxes that you would pay now for several years out into the future--and that's always a good deal.

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stop posting my damn signature

 

For the average commuter, leasing is a money-losing proposition. If you're entertaining clients and running your own business like several have said, it's a better deal.

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?

 

I don't know if anyone can expand on this but I figure I'll ask:

Do y’all know if you lease rather than buy you can avoid a credit check and if it doesn't count as revolving debt in credit applications? The reason I ask is my wife and I are having a developer build us a house (likely close on the loan in December) and I want to do the best job I can to move from an A to A+ loan so I can further negotiate the optimism loan rate (e.g., try to move our FICOs over 700). My previous car has died and we are trying to save as much cash as possible for the down payment (avoid PMI) so my options are: share a car with my wife (slight inconvenience but we can make it work) and buy a car after we close on the loan OR start a lease now.

Other thoughts??


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Well, I don't lease because it isn't economically advantageous for me since I am an extremely high mileage driver, but for people who drive an average number of miles and, for whatever reason, trade out of their vehicles fairly often, leasing can be advantageous for them even without a tax benefits.

Personally, I don't want to judge people who trade out of their cars relatively frequently. They have their owns reasons for doing so, and just because you or I may keep a car longer than others do doesn't make our way right and their way wrong. (Of course, I trade out of cars about every three years, but I also have 150K miles or so on the car by then).

As for the leasing companies and their advertising, all advertising tries to be persuasive and very little of the things being offered are things that we truly need. I can't get upset at leasing companies for touting their product since they are simply trying to make a buck like everybody else in the world. Leasing is for some people. Maybe too many of them are sucked in by the desire to drive a "cool" car, but hey, it's their money. They want to spend it on a car, that's their business.

(I will admit that I am a car guy and spend more than I could spend simply to have a car that I really like instead of one that could be adequate transportation. I don't lease, though, because of the mileage thing.)

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