Business Car Deduction - Lease vs Purchase

[mysticfolken]

Hi SDN, long time lurker, rarely a poster, but I had a question about tax deductions for business cars that I could not find the appropriate answer for.

I recently started my first job as an attending. After driving hand-me-downs all my life, it's finally time for me to adult and get my own car.

My job is a W2, but still allows for pre-tax business deductions. From talking to some of the partners in my groups, I understand that leasing a car will lead to bigger tax deductions. However, I'm still confused about some of the details. Here's my actual question - in terms of wealth accumulation (income/cash + assets), over a 3-5 year period, is a lease or purchase of a car better? In this case, when I saw "assets," let's assume I'm only referring to the car (not home, investments, etc.). And let's say I'm looking at a $50k car that doesn't meet the SUV weight limit for full depreciation deductions.

My thought process is that after 3-5 years, by purchasing a car, while I take the bigger hit up front from buying the car, I'll still have an asset that I could potentially sell. Now, I know that my question has a lot of variables (car cost, actual amount of depreciation)

Sorry for the long post. Any input and possible explanation with an example would be greatly appreciated. I'd like to understand and maybe see real numbers put to this question.

Thanks! And happy holidays!

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[buttman]

My thought process is that after 3-5 years, by purchasing a car, while I take the bigger hit up front from buying the car, I'll still have an asset that I could potentially sell. Now, I know that my question has a lot of variables (car cost, actual amount of depreciation)

This assumption is typically correct. Purchase cost - sale in 5 years < lease payments, fees, etc.

It ultimately depends on how well the specific car holds its value. If it rapidly depreciates over that time frame, then leasing could lead to a lower cost to own over that time. Also factor in mileage.

IDK about your use of the car, but commuting under W2 would still fall under personal use miles IMO. But then again I'm not familiar with the business structure of physician groups and the like.

For a best case scenario in favor of the lease, assume 100% for business use. This would deduct from your income by whatever amount, so your cost to own would be total lease cost - (1-marginal tax rate) * lease cost. * 5 years. Compare that to down payment + monthly - expected sale price in 5 years. Even in this scenario I'd expect purchase then sale to be a better option. Plug in some real numbers into that for a quick and dirty eval.

 

[BobBarker]

When you sell in 5 years you will recapture some of the depreciation as income.

I know lots of guys who have bought trucks so they can section 179 the entire truck in one year. They say they never plan on selling the truck...

 

[aneftp]

When you sell in 5 years you will recapture some of the depreciation as income.

I know lots of guys who have bought trucks so they can section 179 the entire truck in one year. They say they never plan on selling the truck...

Legally you are supposed to recapture the money and add it back when you "dispose" of the section 179 property I've been self employed 9.5 years of my 12.5 years out in practice. There are so many nuisances in the tax laws.

Like the change in the S corp health insurance deduction laws in 2007 where u have to re add back health insurance deductions to your W2 wages you pay yourself as well. Some people cheat the system by deducting health insurance on another part of their taxes and don't fully re add back the deduction to the W2 wages

https://taxmap.ntis.gov/taxmap/pubs/p946-013.htm

 

[sevoflurane]

I work at 3 different Hospitals and too many ASCs to count + we have an office we do business from.

Just custom ordered a new Fuji white ATB. Delish. Adding the SC pulley as soon as I get it and will flash the ECU. Gonna have 620hp and smoke most cars out there (including the SVR).
0-60 in under 4 seconds which is insanely fast for an SUV. Except I have to wait to get it.

 

[sevoflurane]

RRS qualify for the heavy deduction... and they retain their value.

 

[deleted162650]

If you're W-2 and you own the car (not the practice) then you cannot take advantage of the "Hummer Loophole." You either have to have 1099 income to do that or it has to be an official company car owned by the practice. I just went through this with our accountants this year. Luckily I still have residual 1099 income coming from my previous gig so I can do it this year.

commuting under W2 would still fall under personal use miles IMO

If you maintain a home office, as my group requires us to do, then you can deduct your commute miles from your home office to the hospital.



OP, yes too many variables to determine without running some real numbers. If you are going to buy a vehicle you plan on running into the ground (i.e. pickup) then a purchase probably makes more sense especially with the year-end 0% APR deals many dealerships offer right now. If you are going to buy a new beamer and like to drive new cars and not worry about maintenance then just lease because the depreciation and repair cost on luxury cars will kill you.

Now if you're a real baller you do what one of my partners does. He "started" his own leasing company. The leasing company purchases the vehicle
(as a business expense) which he then essentially leases to himself and deducts the lease payments through the group.

Just custom ordered a new Fuji white ATB. Delish. Adding the SC pulley as soon as I get it and will flash the ECU. Gonna have 620hp and smoke most cars out there (including the SVR).
0-60 in under 4 seconds which is insanely fast for an SUV. Except I have to wait to get it.

That's cool and all but you're still gonna look like a Kardashian driving one of those.

 

[sevoflurane]

That's cool and all but you're still gonna look like a Kardashian driving one of those.

All you gonna see is smoke!

 

[sevoflurane]

All you gonna see is smoke!

There is nothing kardashian-like to having 620 ponies and 550 ft-lb of raw torque.

Luv luv luv it.

 

[aneftp]

RRS qualify for the heavy deduction... and they retain their value.

The real issue is do U recapature and add back the disposition asset when u resale it? Most won't.

Just playing devils advocate with tax laws and it's abuse.

 

[deleted162650]

There is nothing kardashian-like to having 620 ponies and 550 ft-lb of raw torque.

Luv luv luv it.

You sound like the guys driving their German/Italian sports cars that I pass on my way to work in my '05 Nissan Frontier . Maybe I'll change my tune after your drive me from the airport to the lifts in record time.

 

[aneftp]

If you have depreciated (via Section 179 + normal depreciation) the cost basis down to an amount much lower than the vehicle’s current fair market value, a sale will trigger taxable recapture of some or all of the depreciation and Sec. 179.

 

[sevoflurane]

If you have depreciated (via Section 179 + normal depreciation) the cost basis down to an amount much lower than the vehicle’s current fair market value, a sale will trigger taxable recapture of some or all of the depreciation and Sec. 179.

What If I keep it for 10 years?

I admittedly have never owned a new car and never have used irs 179. I am also a guy that drives his cars into the ground.

 

[aneftp]

What If I keep it for 10 years?

I admittedly have never owned a new car and never have used irs 179. I am also a guy that drives his cars into the ground.

It's very complicated.

I've done the section 179 (3 times).

I've know the tax laws in and out. 99.9% of the time the irs just turns a blind eye with corporations especially those who fly under the radar.

A lot depends on the residual resale value and what 6000 pound truck/SUV u are trading it in for.

This link gives a pretty good answer

http://www.asktaxguru.com/8378-section-179-deduction.html

 

[BobBarker]

That is very interesting.
I didn't realize you could like kind a vehicle in this manner. I think most of these pickups mentioned above go to the lake or farm or uncle's to live happily ever after once they are past 100k miles

 

[dhb]

I work at 3 different Hospitals and too many ASCs to count + we have an office we do business from.

Just custom ordered a new Fuji white ATB. Delish. Adding the SC pulley as soon as I get it and will flash the ECU. Gonna have 620hp and smoke most cars out there (including the SVR).
0-60 in under 4 seconds which is insanely fast for an SUV. Except I have to wait to get it.

0-60mph time 2.8sec

 

[Scotty_G]

That telsa is fugly

 

[aneftp]

That telsa is fugly

My kids almost threw up in a $100k telsa model x I thought about buying back in September this year.

It handles nice. But I would not suggest the telsa for if u got kids in the back seat. The regenerative breaking causes a lot of motion sickness especially in the back seat. You can disable it but u lose some of the electric mileage i believe. Mode x (6000 plus plus the $7500 federal tax credit ). Essentially a $100k SUV considering tax credit PLUS BONUS DEPRECIATION is like getting it at $70k (tax adjusted).

But telsa are very popular especially in California due to HOV lanes and electric cars. I believe they hand out a limited of passes each year for electric cars.

 

[deleted162650]

It's not limited. Any plug-in electric allows you to ride solo in the HOV lanes.

 

[sevoflurane]

0-60mph time 2.8sec

Very fugly indeed! Not even in the same ballpark as a L494 V8SC beast.
Drove one last week in San Jose. Delorian style doors wouldn't do to well in my garage.
Cool tech tho.

 

[Ronin2258]

Very fugly indeed! Not even in the same ballpark as a L494 V8SC beast.
Drove one last week in San Jose. Delorian style doors wouldn't do to well in my garage.
Cool tech tho.

I would want a two seater myself. I have no need for the extra cargo space 95% of the time during daily commutes.

 

[Wiscoblue]

I have been in my private practice job for 18 years now. As the owner of my own s-corp, I get to either buy or lease my own vehicle. I'm on my third Toyota Tundra right now. With all the bells and whistles it comes to less than $50k out the door, paid in cash. I depreciate it over 2-3 years and keep it for an average of 6 years. Yes I do have to recapture the sale proceeds and add that to my income but it still makes it worthwhile because I charge all maintenance and repairs to my corporate credit card which gets paid by my accountant directly. Even gas for daily commute. My last truck I gave to my nephew. After 6 years the blue book value was still at $14k. So now I have to add 14k to my income for this year. But my nephew loves the truck.

Buy and use for 6-8 years is the way to go. All my partners do the same. Except for one guy who leases a new car every couple of years. Right now he drives a Panamera and his wife drives an I-8.


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[partydoc]

I have been in my private practice job for 18 years now. As the owner of my own s-corp, I get to either buy or lease my own vehicle. I'm on my third Toyota Tundra right now. With all the bells and whistles it comes to less than $50k out the door, paid in cash. I depreciate it over 2-3 years and keep it for an average of 6 years. Yes I do have to recapture the sale proceeds and add that to my income but it still makes it worthwhile because I charge all maintenance and repairs to my corporate credit card which gets paid by my accountant directly. Even gas for daily commute. My last truck I gave to my nephew. After 6 years the blue book value was still at $14k. So now I have to add 14k to my income for this year. But my nephew loves the truck.

Buy and use for 6-8 years is the way to go. All my partners do the same. Except for one guy who leases a new car every couple of years. Right now he drives a Panamera and his wife drives an I-8.


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