| |
Automobiles, Vans and Trucks can be purchased for business use with cash
or with a loan . Alternatively, the vehicle can be Leased for
several years at which time the possession goes back to the lessor.
Often, at the end of the lease term, there is an option to buy.
Cost to buy:
- Down payment (or
paid in full).
- Sales tax,
Property tax and other taxes.
- Motor vehicle
fees and lender fees.
- Insurance and
other services.
- Security deposit
- First monthly
loan payment.
Cost to lease:
- Capitalized cost
reduction.
- Property tax and
other taxes.
- Motor vehicle
fees and lessor fees.
- Vehicle
Insurance and other services.
- Gap insurance (which
covers the shortfall due to the lessor, in the case of a
total loss)
- Security deposit
- In some
jurisdiction, the full monthly lease payment (including
the imputed interest charge) is subject to sales tax
- Excess mileage charge
and Excessive ware costs when the
vehicle is turned in
at the end of the term.
When buying might be better:
- You want the have the vehicle for more than five or
six years..
- You need to
drive more then 15,0000 miles per year.
- You need to drive less then 5,0000 miles per year.
- You want quicker income tax deductions for vehicles
subject to 50% or 100% bonus depreciation or a Section
179 write-off..
- Flexibility to
make changes if your needs change in the next three
years.
- Keeping the transaction less complicated.
- Being able to subjecting the vehicle to rough usage,
without having to worry about excessive wear fees
- Easier to get approval if you have a low credit
rating.
When
leasing might be better
- Leasing generally calls for a lower monthly payment amount, freeing up
cash flow to be used for other purposes.
- You want the have the vehicle for less than three or
four years.
- You want higher income tax deductions for passenger
vehicles not subject to 50% or 100% bonus depreciation
or a Section 179 write-off..
- You need to minimize up-front cash paid.
- Maximize monthly cash flow.
- Driving a more costly vehicle, then
you could afford to buy.
- Avoiding being upside down with a vehicle that has
loss value, lower than the outstanding loan balance.
- During the last third of the lease term the dealer
might be able to work a deal that puts you in a
replacement vehicle sooner and on better terms.
Tax effects when you stop using vehicle:
- If an owned vehicle is
traded-in on a replacement purchase then:
- sales tax might
be offset (reduced) and
- any
gain or loss is deferred.
- If an owned vehicle is
traded-in on a replacement lease then:
- there generally
is no sales tax offset and
- any gain or
loss is recognized treating the trade-in
value as the sales price and
- a tax deduction for
the amount of the trade-in value is
amortized over the term of the lease.
- If an owned vehicle is sold
outright to an unrelated party then:
- there is no
sales tax offset and
- any gain or
loss is recognized.
- If an owned vehicle is removed
from business use and is retained for use by a related
party then:
- there may or
may not be a sales tax issue and
- any gain is
recognized as ordinary income or
short-term capital gain based on the
difference in FMV and Tax Basis (book
value) and
- generally
losses are not deductible.
-
If an owned vehicle is junked or
destroyed then:
-
there is no sales tax offset and
-
any
loss is recognized and
-
any
applicable property tax may be
eliminated.
|
