The debate over the benefits of leasing rather than purchasing an automobile continues. Proponents view vehicle leases as sophisticated, convenient, and tax-deductible. Others argue that the lessor is just renting a car at a much higher cost than purchasing it. I hope to steer clear of this debate. Still, as I distance myself, I’m going to look over my shoulder and whisper, “If the car company is pushing leases, it’s because they’re profitable.” Then, after a few more steps, I mumble – nearly hum, “Real Estate agents drive a lot for business. Be sure to read the mileage restrictions before signing the contract.” OK - Done. Now that we’re clear of the leased-vehicle dispute let’s turn to our purpose: taxation and deductions for real estate agents who lease a business vehicle.
Leased Vehicle Overview: With a few exceptions, the tax treatment of a leased vehicle is similar to owning a car. The agent has two choices: Deduct the standard mileage rate or deduct actual auto expenses. Which should an agent choose? That depends on which method provides the most tax-benefit, the amount of recordkeeping the agent wishes to do, and the tax-knowledge of the agent (if preparing their own return). I can’t say which method is best for you, but I can share the basics of each technique.
Standard Mileage Rate: Real Estate Agents using this deduction method for a leased vehicle must follow the procedures and rules discussed in our article - Real Estate Agents, Auto Deductions: Standard Mileage Rate. The primary difference between the standard mileage rate for a lease versus an owned vehicle is that the leased-mileage-rate does not include an allowance for depreciation. Regardless of this difference, a leased vehicle still enjoys the same mileage rate as an owned vehicle.
The standard mileage rate is more straightforward than the actual cost method. Agents using it must track the number of miles the vehicle is driven for business, commuting, and personal use during the year. The mileage deducted rate is set by the IRS each year and generally falls between fifty-four and fifty-nine cents per mile. In 2019, for instance, it is/was $0.58 per business mile.
Actual Cost Method: Using the actual cost method is more complex and requires additional recordkeeping, but often leads to a higher deduction for leased vehicles. The rules outlined in our article Real Estate Agents, Auto Deductions: Actual Cost Method apply to a leased vehicle with the few variations listed below:
Business Use Adjustment: As illustrated above, like most actual vehicle costs, the rent deduction for a leased vehicle is limited to the percentage of business miles driven during the year. Calculating the business use percentage is discussed in our vehicle actual expenses article. The article also discusses vehicle-related costs that are not subject to the business-use-percentage.
Take Away: Leasing can prove a substantial tax deduction for a real estate agent. However, it’s a deduction that comes with a few technical challenges. It’s also a deduction that may prove more costly than the tax-savings generated. Take care to determine whether a vehicle lease is in your best interest. Consider its cost and mileage limitations before signing the contract.
Summary and Invite: We hope this article has helped you to understand the deductibility of leasing a vehicle. If you’d like to learn more about cutting your most significant expense, TAXES, check out our Real Estate Agent Tax Cut Library. The Real Estate Agent Tax Cut Library includes over eight hours of video broken into twenty-nine searchable volumes and covers every possible deduction a Real Estate Agent can take on their tax return. Our Broker Version will help your entire agency cut their taxes! We also invite you to browse our courses.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
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