To lease or not to lease…that is the question (when shopping for a new practice automobile).
We are just about into summer which means that car dealers will be on the hunt for prospective buyers as new models fill their lots. Being a car aficionado myself, this time of year is always a bit more intriguing since I get the opportunity to talk with clients about the new cars they purchase as well as how to make sure they get the greatest tax benefit out of them. Although, too often we are filled in about the new car acquisition after it has already taken place which eliminates the ability to make a decision on whether to lease or purchase it. Below are a few rules of thumb when it comes to determining if it makes sense to lease your new car, or to purchase it.
- If you plan on only having the car for the short term (1-3 years) then in most situations it is going to make financial sense to lease the car. This is especially true for non-truck (or non-SUV) vehicles that have a Gross Vehicle Weight Rating (GVWR) of less than 6,000 lbs.
- If you plan on keeping your new car for a long time (4+ years), it will usually make sense to purchase the car. This applies for smaller cars as well as trucks. Purchasing a car and making monthly loan payments over 5, 6, or 7 years will usually result in less cash going out the door compared to a lease that would last a similar length of time once you take into consideration you will own the car at the end of the loan agreement.
- If you know you would like to get a truck or big SUV (over 6,000 GVWR) then it will usually make sense to purchase it. If your business purchases the truck it can then write off up to $25,000* of its expense within the first year use. The ability to receive much of the tax benefit up front, rather than spacing it out over multiple years makes purchasing much more attractive from a tax standpoint.
- Don’t let tax ramifications determine which car to get. In other words, find the car that you want/need and then determine if leasing or purchasing the car would be best. You don’t want to be driving around in a truck for the next 5 years paying for lots of gas if you don’t really need a truck, but you wanted to get the $25,000 write-off. Likewise, don’t buy a tiny 2 door sedan if you know you are going to need a vehicle that has more seating and 4 wheel drive because you were going to get a good deal if you leased it.
As always we are here to help determine if leasing a car or purchasing it makes the most sense for your practice. Please don’t hesitate to get in touch with us if you would like us to run the numbers on specific situations to make sure you get the greatest benefit.
*Please note that congress is currently in the process of revising the section 179 depreciation limits. This amount could change once the 2014 amounts have been determined.