Q. Should I buy or lease a vehicle for my business?

A. There are different factors to consider to determine if an individual should buy or lease a vehicle.
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Lease vehicles – you can choose between the standard mileage rate or the actual expense method. If you choose standard mileage rate in the first year, you must use this method for the life of the lease.
 

If you choose actual expense method for a leased vehicle, you can deduct the business percentage of your lease payments, fuel, insurance, repairs & maintenance,  and any other business costs for the vehicle.

 

Purchase vehicles - you can choose between the standard mileage rate or actual expense method. If you chose standard mileage rate in first year, you can choose to switch to the actual method in a later year if more favorable. The IRS increased the Mileage Rate for 2025 to 70 cents per mile.

 

Actual expense method – You will take depreciation of the vehicle and can take fuel, insurance, repairs & maintenance. If the vehicle is financed, you can also take the interest paid on the vehicle, but not the payments.  
For 2025, there are 3 methods of depreciating your new vehicle:
For vehicles with Gross Vehicle Weight (GVW) under 6,000 lbs., in the first year you could take Section 179 depreciation on the vehicle of $12,200 plus an extra $8,000 is available for a total deduction of $20,200, with the remaining purchase price being depreciated over the next 4 years. The maximum luxury auto depreciation deductions for a passenger auto placed in service in 2025 are as follows:
•    $20,400 for year 1 if bonus depreciation is claimed ($12,400 if bonus depreciation isn’t claimed),
•    $19,800 for year 2,
•    $11,900 for year 3, and
•    $7,160 for year 4 and thereafter until the vehicle is fully depreciated

For vehicles with GVW over 6,000 lbs, you can also elect to take Section 179 expense which will permit you to take $31,300 in 2024 + 64% bonus depreciation of the remaining purchase price. The remaining would be depreciated over next 4 years (if applicable)

For a list of vehicles with Gross Vehicle Weight over 6,000 for 2025, visit: https://www.taxfyle.com/blog/list-of-vehicles-over-6000-lbs

For vehicles over 14,000 lbs, business owners can deduct 100% of the cost of the vehicle in the year it is placed in service.

You can also elect to opt out of the accelerated depreciation, and take the standard MACRS depreciation over the 5 year useful life.

The last difference for a purchased vehicle is when you dispose of it, there may be a taxable gain or deductible loss. When you return your leased vehicle, there is no taxable gain or loss.  
If you want to get a large deduction in the initial year of the new auto then purchasing is beneficial. If you do not need the large deduction, then it is mostly personal preference on whether you want to buy or lease.
Other personal reasons:
1.    How many miles you drive per year – leased cars are charged extra fee for too many miles driven
2.    How long you want to keep your car – do you want to get a new car every 3-4 years
3.    How much do you want to spend on your monthly payments – lease payments are usually less

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