Tax Benefits of Leasing a Car vs Buying a Car for Business

Choosing whether to lease or buy can save, or cost, your business thousands at tax time. Buying or leasing a vehicle through your business can unlock major deductions,but how much you save depends on what you buy, how you pay, how much you use it for work, and how you track it. We’ll help you navigate the rules, avoid common mistakes, and keep more of what you earn.

Overview

Buying a car for your business offers bigger tax write-offs through Section 179 and bonus depreciation.
Leasing a car lets you deduct your monthly lease payments based on business use.
Buying is better for long-term ownership and higher annual mileage.
Leasing is better for lower upfront costs and easier vehicle upgrades.

Table of Contents

Buy vs. Lease: Which Strategy Fits You?

When deciding whether to buy or lease a vehicle, it’s important to keep your priorities and goals in mind:

Goals:

Preserve cash now
Lower monthly outflow.
Higher upfront cost.

Maximize early deductions.
Lease payments spread out
Bonus depreciation if >50% business use.

Drive luxury or light vehicles.
Avoids depreciation caps
May hit luxury car deduction limits.

‍Long-term asset ownership.
No equity at end of lease
You own it and keep resale value.

‍Keep things simple
Standard deduction of lease cost
Requires asset tracking and depreciation schedules.

If You Buy a Vehicle

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Here are some tax considerations if you decide to a buy a vehicle for your business:

Heavyweight bonus
- Vehicles over 6,000 lbs (think Range Rover, Tahoe, F-150) aren’t subject to luxury car limits. These can qualify for 60% bonus depreciation in 2025, potentially giving you a huge write off in year one.
- Lighter vehicles are subject to luxury auto depreciation limits, capping deductions at around $20K in early years and even less over time.
Section 179 Deduction and Bonus Depreciation Opportunities
- If your business purchases a vehicle, you may qualify for the Section 179 deduction, which lets you write off all or part of the vehicle’s cost in the year it’s placed in service, instead of depreciating it over several years. You may also combine this with bonus depreciation for additional tax savings.
Bonus DepreciationYou don’t need to pay in full cash to maximize your depreciation deduction. As long as the vehicle is placed in service by year-end and primarily used for business, you can still take full bonus depreciation, even if you finance it.

Strategy: When you finance a heavy vehicle used primarily for business, your tax deduction could outperform your cash flow in early years.

If You Lease a Vehicle

Here are some tax considerations if you decide to a buy a vehicle for your business:

Deduct payments based on business use - ideal for lower-mileage drivers or those who like to change vehicles frequently.
No large upfront deduction, but easier to budget month-to-month.
Choosing the legal owner

Business-owned vehicles are eligible for full business deductions, but commercial insurance may cost more.

Personally owned vehicles are still eligible for the same deductions, but require careful documentation of business use and record-keeping of costs for reimbursement.

Bottom line: If you want big write-offs and drive a qualifying vehicle more than 50% for business, buying is usually better. If you want flexibility, lower commitment, and simplicity, leasing can make more sense.

Key Vehicle Deductions for Businesses

No matter what you drive, the percentage of your miles used for business directly impacts your deduction. Learn more about how to qualify for each of these tax strategies

Bonus depreciation or Section 179: You must establish at least 50%+ business use
Any deduction at all: must track and substantiate your business use percent.

You don’t need to track every mile. Yep, you read that right. Per IRS guidelines, you can:

Record odometer readings at the start and end of the year
Keep a representative mileage log to estimate annual business use
Supplement with calendar, CRM, delivery logs, or appointment records

Example: Instead of tracking every mile, track all of your miles for two typical weeks straight, three times a year. This would be considered acceptable support for your annual business use percent.

Mileage vs. Actual Expenses: Choose the Best Method

There are two ways to calculate your annual vehicle deduction, the standard mileage method and the actual expense method.

Standard Mileage Method

IRS sets the rate (70 cents/mile in 2025)
Covers gas, wear and tear, and maintenance
Easy to use, but often leaves money on the table, especially for expensive or high-mileage vehicles

Actual Expense Method

Deduct a percentage of actual costs based on business use
Acceptable costs include gas, insurance, maintenance, registration, depreciation (if owned), loan interest (if financed through the business) and more
Offers much larger write-offs for newer, heavier, or more expensive vehicles
Required if you want to claim bonus depreciation

Heads up: If you start with the mileage method, you can’t switch to actual expenses later for that same vehicle.

If you have any questions about business vehicle deductions, contact us

Talk to a CPA

What Can You Deduct?

Here are some common expenses related to business vehicles, and how they are treated for tax purposes.

Expenses:

Lease Payments:
Deductible. Business use % only.
Loan Payments:
Not deductible. Only the interest is eligible to be deducted.
Loan Interest:
Deductible. Business use % only.
Car washes:
Deductible. Business use % only.
Gas:Deductible. Business use % only.
Insurance:
Deductible. Business use % only.
Maintenance:
Deductible. Business use % only.
Repairs:
Deductible. Business use % only.
Tires:
Deductible. Business use % only.
Tolls & Parking:
Deductible. 100% deductible if business related.
Depreciation:
\Deductible. Only if you own the vehicle, the amount depends on your purchase price.

Important note: If you pay expenses for a vehicle that’s used for business from your personal account, be sure to track them carefully throughout the year to ensure you are reimbursed and the business use % gets correctly deducted on your tax return.

Real-Life Deductions in Action

Check out some examples of how different decisions around vehicles can impact your tax outcome:

A real estate agent in California purchased a 6,500 lb SUV for $80K through her S corp in April. With 85% business use, she deducted $40,800 in 2025 alone.
A solo consultant leased a $50K EV for 36 months, using it 60% for client meetings. She deducts $600/month - simple, predictable, and fits her cash flow.
A GP in a partnership bought a Tesla Model 3 personally but reimburses mileage from the business. No depreciation deduction, but the compliance is simple and insurance premiums are low.

To see other common write-offs that can reduce your taxable income, check out our guide on tax deductions for business.

Thinking of Getting a New Vehicle? What to Do Next

Decide whether your priority is cash flow, deduction size, or flexibility.
Choose the right type of vehicle, since you now know that weight, cost, and use matter.
Track your business use % starting from day one. It will drive every part of your deduction.
Coordinate with your tax team to make sure your tax plan reflects your new investment.

Need help deciding which method to take for your business? Talk to a CPA

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ℹ️ This information is for educational purposes only and does not constitute legal or investment advice. Consult a qualified professional before making any investment decisions.

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