leased car - business expense on our taxes?

Question

My husband and I are looking into leasing a car for him to use for work. He works from the house most of the time but does drive to see clients a couple of times a week, for which his company does pay mileage. Would we still be able to write off the lease payments (or a portion of them) as a business expense on our taxes?

Answer 1

You can do this. Whether it gives you an advantage or not can only be determined by figuring your deduction.

You would figure the actual expenses of operating the car for business, rather than take the mileage. The business use of the car is the ratio of business miles to all miles driven for the year. That proportion of the lease, minus an adjustment called the "inclusion" amount, can be deducted instead of depreciation which you take on a car you are purchasing. To this you would add the business portion of operating expenses such as insurance, repairs, maintenance, fuel.

After figuring your actual expenses, you would either

1. Reduce your actual expenses by the mileage reimbursement if the employer reimburses you with tax-free money (as when you submit a mileage request for reimbursement).

2. Not subtract the mileage reimbursement if the employer includes the mileage reimbursement in wages (Box 1 of Form W-2).

The above is figured on Form 2106.

The net unreimbursed employee expenses from Form 2106 would be entered on Schedule A Miscellaneous Deductions. Only those amounts in excess of 2% of AGI are deductible.

Read all about it here, Pub 463, page 24.

Answer 2

If his company is paying for the mileage, he's already being reimbursed so can't deduct the lease payments in addition off his taxes. Under some circumstances, unreimbursed employee business expenses can be deducted, but his are reimbursed.

If the company is reimbursing him less than the rate the 48.5 cents the IRS allows, you might under some circumstances be able to take a deduction for part of the leased car expenses, but it is pretty complicated. In brief, you could only do it if you itemize, and could only take the amount of the expenses that was over 2% of your AGI, would have to claim the reimbursement as income, and would have to track all mileage on the car and just deduct a prorated amount that is business (not commuting or personal) miles. If he's getting reimbursed at a very low rate, and the couple trips a week are hundreds of miles each, and you aren't using the car for personal use, it might or might not be worth it. Otherwise wouldn't be.

Answer 3

If you are claiming the mileage reimbursement as taxable income, then probably yes, but the rules are complicated.

If you are not claiming the mileage reimbursement as taxable income, then definitely no, except possibly to the extent to which total expenses for the vehicle's business use (including lease payments, gas, oil, insurance, etc.) exceeds the reimbursement. It is never legal to deduct an expense (or portion thereof) for which you also receive tax-free reimbursement.