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Lease Down Payment

2010-01-21 by Eva Rosenberg

Today TaxMama hears from Joel in New York with this question. “If I lease a car for business, say 80% business use, can I write off 80% of the down payment?”

Dear Joel,

People lease cars for business all the time. I wonder why no one has ever asked this question before?

Some of the TV commercials I’ve seen seem to call for substantial down payments. They make me wonder why anyone would bother to lease – especially when you can get such a good deal buying a car these days?

Back to your question. When the down payment is substantial, you might have to spread it over more than one year. See Publication 463, which says:

“You must spread any advance payments over the entire lease period. You cannot deduct any payments you make to buy a car, even if the payments are called lease payments.”

Also, remember to compute the lease inclusion amount from the tables. You can find them on the Small Business Taxes and Management site’s auto expense pages.
http://www.smbiz.com/sbrl003.html

And remember, you can find answers to all kinds of questions about vehicle expenses and other tax issues, free. Where? Where else? At TaxMama.com.

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IRS Publication 463

Chapter 4 - lease down payments

Small Business Taxes and Management

Depreciation & Lease inclusion Tables

# | Posted in Tax Quips | Comments » (2)

All Comments

Gregory Noe Says:
January 21st, 2010 at 12:18 pm

This would be a good opportunity to talk about the differences between true leases and capital leases which are really a means to finance a purchase. First a capital lease is one that has a nominal ($1) payment at the end reflecting that you really purchased the asset and are paying on time. The reason this is done is so the the lender retains title to the property until the end for the ease of re-possession.

Transactions of this nature are recorded as purchases with the asset included on balance sheet. Lease payments are not fully deductible like true leases are (subject to personal/business use allocations)but rather have to be segmented the same way loan payments would be broken out into principal and interest.

Dr. Joyce Starr Says:
January 22nd, 2010 at 12:00 pm

Dear Eva,

I want to compliment your stellar newsletter. Written with style and grace, it's packed with vital information, thoughtful answers and invaluable resources. We all know what it takes to write a good newsletter. But you hit out of the ballpark day after day with a great newsletter.

Congratulations!

Dr. Joyce Starr