If I lease a car to only use it for my small business what can I deduct from the car?

Question

Can I only deduct the monthly payments or the entire lease costs including downpayment/tax/licensing fees. Also, can I continue to claim/deduct mileage cost on my tax return in addition to the lease cost? Also, can I claim 100% of the lease cost as a businesss expense since I have a 2nd car for personal use without it being a red flag to the IRS?

Answer 1

You can choose to deduct the actual expenses or mileage, but not both. In particuar, if you deduct mileage you cannot also deduct lease costs.

If you choose to deduct mileage, you must keep that method for the period you lease the car. The mileage rate for 2006 is 44.5 cents per mile. You can always deduct parking and tolls in addition to mileage.

If you choose to deduct actual expenses, you can deduct your lease payments instead of depreciation which you would deduct for an owned vehicle. Read Pub 463 to see how the lease payment deduction is figured. Or your software will do it.

Your downpayment is an advance payment on the lease and is spread out over the period of the lease and added to each lease payment.

Other expenses you can deduct if you choose actual expenses are licenses, gas, oil, tolls, insurance, garage rent, parking, registration, repairs, tires.

Deducting 100% of the actual expenses or mileage for a leased car used 100% for business is not a red flag to the IRS. You are asked if there is another vehicle available for personal use in the tax forms.