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Thread: financing/leasing a car for tax purposes? vs buying cash

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    Default financing/leasing a car for tax purposes? vs buying cash

    in the past i have bought my cars cash always to avoid a car payment.

    however, my friends (who owns a hair salon, i.e. is self employed) told me she leases her car because it's tax deductible.

    i am buying a new car this week and am now contemplating financing or leasing. Really, i prefer to finance though because i don't like the concept of leasing, but again this depends on the tax issue.

    I have the cash for the car. My car now is worth about $25k and the one i want is $22k. I'm just sick of my car that's all. However, I could use the cash both as a cushion and for expenses for my RE investing (I get that back as soon as the house is sold, it's just nice to know there's more in case more repairs are needed which usually pays off exponentially in the end)

    I invest in real estate and am a licensed realtor as well. So I pay taxes as an investor, realtor and entertainer.

    What makes the most sense for me financially?

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    Would it possibly make more sense to hold on to the car you now have? Just sayin'. I was shocked myself, when taking a recent test drive, the guy told me most people get rid of their cars too early.


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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    I don't know about leasing, but I know that one of our DJs bought a 2015 Camaro and said he wrote it off. I guess there's some tax break for buying NEW cars. I couldn't get it because I bought a 2013.

    IMO I don't like leasing either, just because to me it's like paying rent. Even if I'm making car payments and it's depreciating, at least I can sell it in 5 years and get back half of what I put in. I drive a nice car now, so at least if in a couple years (once it's paid down) I hit a shitty spot, I could at least sell it and get back enough $$ to buy something for cash. If you hit a crappy spot with a lease, you give the car back and you get nothing.

    Plus with a lease you gotta worry about mileage. My friend leased a car in high school and he racked up a TON of extra mileage. The bill was outrageous. It depends on your driving needs and the lease terms though.
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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    Good Points, Sel
    Also: Someone I know leased before, some damage happened to the car..she had it fixed but, I think it has to be returned in pristine condition?


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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    ^ Yep, my friend whacked the side mirror off and he had to pay to replace it. They will not take it back unless it is fixed, or else they charge you astronomical repair prices.
    "People jack off with the left hand and point with the right."

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    In theory, a self employed person is only supposed to deduct the portion of the lease that relates to business use. So if you drive the car half of the time for business purposes and the other half for personal reasons, then only half of the lease payment would be deductible. Only you know how much you drive it for work vs. personal use, but this is something to consider.

    Another thing to keep in mind is that a car used for business also has a depreciation deduction, but the benefits of it spread out over a much longer time. Still though it is not all or nothing on the tax front if you decide to lease vs. buy.

    Personally I have never been able to wrap my arms around leasing a vehicle. I want to drive out of the dealership and be done with them, except for routine maintenance during the warranty period. I negotiate the shit out of my car purchases, including price and financing rates. If you have good credit and are willing to make a decent down payment, then there is no reason why you should have to tie up a lot of cash upfront in a car purchase as you should be able to get a very favorable interest rate.

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    So I went to carmax today and they only want to give me 22,500 for my car which is ridiculous. They sell older cars with a lot more mileage for the same price.

    And yes, I agree on the leasing. I don't think I will do that just for it to be tax deductible.

    I have an attractive offer to finance my dream car (it's also more appropriate for my real estate business than my current car) but would only do that If I can deduct those payments.

    So can I deduct the payments for a financed car? Or at least the percentage I use it for business?

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    ^ I would sell it privately for the $25k and then go to Carmax for the new purchase. Carmax out here offers people the most for their trade-ins so I don't know if you'll get a better offer at another dealership.
    If you say it's worth $25k, is that the Blue Book price for what someone else would pay retail? Because a dealer wants to get as much profit as possible, obviously, and will certainly offer you well under that.

    I *think* you can deduct payments, but check with Melonie or Zofia. You do have to keep track of the mileage though if you want that deduction. Keep a notebook in the car and write down start/end mileage whenever you use it for business.
    "People jack off with the left hand and point with the right."

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    You cannot deduct payments. You can take a depreciation deduction based upon a fixed schedule for certain types of assets. However, the schedule is based upon the estimated life of the car which is longer than your payment schedule will be, so the deductions during the payment years will likely be a lot lower than your actual payments.

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    I suggest talking to a tax accountant.

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    They pay wholesale and sell for retail, so if you sell yourself you can perhaps get close to retail, but that's one way they make their money...

    What others said, but may be simpler to take the 'standard mileage deduction', which for 2014 was:


    • 56 cents per mile for business miles driven
    • 23.5 cents per mile driven for medical or moving purposes
    • 14 cents per mile driven in service of charitable organizations

    The $0.56 per mile is based upon a 'standard' new vehicle, requires record keeping of recording mileage 'at or about the time of the usage'... Is most attractive for an older vehicle that is paid off... Your tax professional will tell you commuter mileage is not allowed, but if you're driving to showings or viewing listed properties (on the way to the grocery store...), well that counts... ;-)

    *not a tax professional, but have friends who are...*



    Quote Originally Posted by crystalize View Post
    So I went to carmax today and they only want to give me 22,500 for my car which is ridiculous. They sell older cars with a lot more mileage for the same price....<snip>
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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    well the mileage the deduction i will get regardless. the sales guy even told me they will sell it for 26k so they will make a 4-5k profit.

    i just went there cause i sold them a horrible car before and got a lot more than it was worth imo, and i was definitely shocked when they told me how little they would give me for my car now. it's a frickin 2015 car.

    guess i will hold on to it... thanks for all the replies.

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    Leasing for business use works because it is just an expense, like renting an office. Kia or Ferrari, same difference to the IRS. When you lease you add all your costs, lease, insurance, gas, repairs, and multiply them by percentage business use[never 100 percent, ever] and that is your write off, as opposed to the mileage deduction.

    Driving a paid off car for the mileage deduction is like free money, so it is hard to give that up, but if you:

    need a new car
    drive few enough miles
    keep a car in good shape[like, you do not park in the street at night or let the dog live in it]
    want a new car on a regular basis

    then leasing may work for you

    about 10 years ago there was a rule that I think has changed that meant over ~28k price you basically had to lease for business use

    remember a 'write off' does not mean someone else is paying for the car, you are still paying, but with pre tax dollars, so everything you write off is your net tax rate [say 25 percent] cheaper than it is for W2 workers.

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    Depreciation Limits for Passenger Automobiles Tax Year Standard First $3,160 Second 5,100 Third 3,050 Subsequent 1,875

    this is why businesses lease, if the car costs more than 'x' you are paying more than you are depreciating. they let the bonus depreciation lapse, so it is back like it used to be, I think

    so if you bought that 22k car, you probably would pay more in payments the first year than you can write off[depreciation +interest] where as if you leased it you would be able to write off
    any lease payment as an expense

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    Leasing has mileage limits, I don't know a realtor in the universe that doesn't spend most of their time driving. You will blow past this mileage limit in 5 minutes

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    Default Re: financing/leasing a car for tax purposes? vs buying cash

    Agents have a lot of leeway in how they handle cases. On the small chance that you receive scrutiny, you don't want to be "that guy" that tried to deduct a dream car. Deduct your 2007 Honda Accord that you use for work at the rate per mile. Buy your Maserati Quattro Porte with your own post tax income, and enjoy it.

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