Business Vehicle Expenses: Buy, Lease, Deduct Smarter

🛍️ Buy vs. Lease: Which Strategy Fits You?

There’s more to life than taxes. When deciding whether to buy or lease a vehicle, it’s important to keep your priorities in mind:

Goals:

• Preserve cash now

✔️ Lower monthly outflow.

❌ Higher upfront cost.

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• Maximize early deductions.

‍❌ Lease payments spread out

✔️ Bonus depreciation if >50% business use.

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• Drive luxury or light vehicles.

‍✔️ Avoids depreciation caps

❌ May hit luxury car deduction limits.

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• ‍Long-term asset ownership.

‍❌ No equity at end of lease

✔️ You own it and keep resale value.

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• ‍Keep things simple

‍✔️ Standard deduction of lease cost

❌ Requires asset tracking and depreciation schedules.

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🚘 If You Buy

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.

You don’t need to pay cash

• You don’t need to pay in full 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 Unlocked: When you finance a heavy vehicle used primarily for business, your tax deduction could outperform your cash flow in early years.

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📄 If You Lease

• 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.

📊 Business Use %: The Key to Every Vehicle Deduction

No matter what you drive, the percentage of your miles used for business directly impacts your deduction.

To qualify for…

• 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.

🔍 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, 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.

🧭 Thinking of Getting a New Vehicle? What to Do Next

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

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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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References

IRS Publication 946: How to Depreciate Property

IRS: Depreciation Limits on Luxury Vehicles

IRS Publication 463 – Ch. 4: Trucks, Vans & SUVs

IRS Topic No. 510: Business Use of Car

IRS Publication 535: Business Expenses – Interest Expense

IRS Accountable Plan Rules (see section on “Reimbursed Expenses”)