To lease or Own?

Its getting closer all the time that my old truck need to go. Have always owned my vehicles but wondering this time around about leasing. Being a “S” corp payments the business make on the vehicle still show up as income for the business. Do lease payments still show up as income or as a expense? Is it typically more expensive to lease or own? This will be my tow vehicle and it does not see a lot of miles. Most weeks it sits in the drive way attached to the boat until its time to go to the ramp again.

Thanks

I look at leasing like I look at renting.

Pay rent on a building for 4 years and what do you have at the end? Pay a lease on a vehicle for 4 years and what do you have at the end?

Cash is King. Since you know you will need to do something soon start saving your cash. Start looking for a used vehicle to get into. If you can pay cash without financing do it. If you need to lease……….well don’t.

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Its getting closer all the time that my old truck need to go. Have always owned my vehicles but wondering this time around about leasing. Being a “S” corp payments the business make on the vehicle still show up as income for the business. Do lease payments still show up as income or as a expense? Is it typically more expensive to lease or own? This will be my tow vehicle and it does not see a lot of miles. Most weeks it sits in the drive way attached to the boat until its time to go to the ramp again.

Thanks

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That is an awesome question for your tax advisor.

When you can get 0% financing on almost any new or nearly new vehicle. I would find it hard to lease. However if you are the kind of guy who gets a new vehicle every couple years and always have a payment leasing might be the way to go.

Not sure on the tax aspect, but if you could offset some of your income with a lease that might be alright too.

Yep. Will be running it by the accountant next time I talk to him. Not sure if you could really compare renting a building to leasing a vehicle. One is a asse while the other a liability. Then again some would claim both as liabilities. The longer you sit on a building the value should go up. Just the opposite on a vehicle. One of the reason Im wondering about leasing. Dont need to be the owner on another liability.

My current truck, granted that it has been long paid for is trying to doing its best be a huge liability with repair bills. Since Im not a mechanic and do not really care to work on vehicles anymore new is the way to go. Much easier for me to figure out a payment every month than worry about break downs, towing, unexpected mechanic bills and so on.

The tax treatment of a lease is based on the classification, is the lease a capital lease, or an operating lease? There are 4 criteria to determine.

If it’s a capital lease, you are required to capitalize the asset, and depreciate it. In essence a capital lease is saying you are really purchasing the asset due to the terms of the lease rather than leasing it.

An operating lease is the one you expense your lease payments.

I think the car companies have it figured out to make money off their leases – they are hard to beat at the game. If you want to drive a fairly new vehicle, all the time, and are fine with making a monthly payment for the rest of your life for that luxury, leasing is probably right for you.

If you’d like to either build equity in assets, or own them for their entire useful life to reduce the total cost of ownership – buy it.

I work for a toyota dealership. lease is the best way to own a car truck or suv. The money factor is 0 percent also with toyota no maint for two years or 25000 which ever comes first. always under factory warnenty so no out of pocket for two years. also at the end of your lease there is equity that is your money. lowest overall cost of a car for three years. BEST WAY TO OWN FOR THREE YEARS

You must not have read the forum rules. You cannot make any sweeping statements or big claims within your first 5 posts or they wont be taken seriously. Just kidding. Way back when we leased you also had the option to buy the vehicle at the end. Sometimes the price was nice and you know who the previous owner was!

thanks for the jab!! haha . forgot my user info here so iam under a new user name. And that is true you can buy your lease at the end cheaper that a used on a lot and the price is up front at the time of the lease. so you know what the car is worth in three years.

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I work for a toyota dealership. lease is the best way to own a car truck or suv. The money factor is 0 percent also with toyota no maint for two years or 25000 which ever comes first. always under factory warnenty so no out of pocket for two years. also at the end of your lease there is equity that is your money. lowest overall cost of a car for three years. BEST WAY TO OWN FOR THREE YEARS

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Interesting using the word OWN I would think a better word would be USE or RENT.

do you own your car for five years when you borrow money from a bank for 60 months ? No you are really leasing it from a bank at higher rate? if you dont quailify for zero percent. And then you have a car that is not worth anything and has maintance cost.

Something else worth mentioning. If you like to add things to your vehicle (performance or cosmetic) like I do then lease can be a problem. Temporary things are fine but big ticket more permanent items are out.

Mike – What size vehicle are you looking at? I think there are different rules based on weight and if the vehicle weight is under 6000 vs 6000 and up.

Not sure if that rule still exists today as it has been a few years since I had a business use vehicle. But I was able to depreciate 100% of the vehicle at that time because it was over 6000 lbs. There are so many loops that you can get into so hopefully your accountant knows what makes sense for you. I would assume the 6000 restriction might apply to leased vehicles as well.

And I think a few people that have posted replies are not understanding that the truck is in the s-corps name and not yours personally.

“And then you have a car that is not worth anything and has maintance cost,”

If your car has no value after 5 years I think you need to re-assess your driving/caring for equipment process, or go with a different manufacturer.

It was 10 years ago now, but when I bought my last truck at the time I could buy and finance for lower payments than leasing. And after paying it off I drove it another 3 years payment free (maintenance free to aside from oil/tire changes) and still got a nice trade in value on it when I needed to upgrade to a crew cab. It sounds like your looking to keep it for the duration (or did the last one anyway) so I can’t really see how purchasing couldn’t be the lower total life cycle cost.

without considering tax implications on a business vehicle…

The only reason I see for leasing is if you are choosing to buy something that is out of your comfort zone. For example, lets say you have driven a silverado for 20+ years and you know what you are getting but you really want a crew cab with a 6.5′ box and are curious about the Ecoboost. Lease it and at the end of your term you can chose to buy it or cut ties. BUT if you are just going to buy another Silverado don’t even think about leasing.

Can you guys tell me what pickups you had that had significant maintenance in its first 3 years?? SO I don’t buy it!!

i don’t see the benifit of paying monthly payments for the rest of your life vs payments for 3-5 years and no payments for 12. because you are worried about a fuel pump, alternator, tires, brakes?????

IMHO of course.

For a lot of people its worth having a monthly car payment to ensure a nice, newer and realiable vehicle. If leaseing was just plain stupid and nobody wanted them they wouldnt exist.

I have talked to many financial analysts that swear by the lease. I have a hard time with it conceptually too but the advice always comes down to,

“Buy Appreciating Assets, Rent or Lease Depreciating Assets”. Until the last correction, buying a home for instance, was an example of an appreciating asset. Also buying things like antiques, rare coins, art, etc.

Buying cars, is almost always a depreciating asset, unless you’re buying a high end car that is unique enough to appreciate in value.

If you can wrap your brain around this concept, which is tough for me to do also, leasing is the best option.

ET

Good thing Im giving myself plenty of time on this. In the end what ever option ends up being cheaper is what Ill go with. Just a matter of getting all the right info and running the numbers.

So who here has leased and would you do it again? Like I said before all my vehicles has been purchased and this is the 1st time I have even thought of leasing.

Guess if the answer was a easy one we would all be doing one option or the other.

call me stupid guys, I just don’t buy it.

I believe its guarunteed cash to car dealers/manufacturers. A grown man should not be scared of normal maintenance. and a lease in my eyes is praying on the “i’m not handy” folks and folks who beleive there is going to be huge costs of owning a reliable vehicle.

in ’02 I graduated college and bought a 97′ silverado with 55K miles for $13,500. I now have 210K miles on it and have only put a battery, alternator, new tires x3, brakes, and a fuel pump in it. How can a financial advisor tell you leasing for the last 11 years at $400/month ($52800) is the way to go??

if you want an unproven product, by all means lease. If you want a know reliable product then buy.

oh ya, I forgot to mention I am NOT handy. I’m a pharmacist for crying out loud. (but I did grow up on a dairy farm in wisky)

I don’t mean to sound so stubborn.

I am tossing around leasing a hybrid fusion or camry/avalon for work commuting and effiecient family driving. But nervous about reliability.

But when the 2014 silverado comes out with a crew cab w/6.5″ box and 0% APR. I am taking the plung.

In the eyes of the IRS, leasing is a rental. And rentals are treated as an expense to the company. A straight out purchase is depreciated. NOW, be careful about the residual you have with your lease,, if it’s a $1 purchase option or something else very minimal u will still need to treat it as a loan or purchase and depreciate it.

With that said, If you are working this purchase that will have any relation to your business, call your tax person. They will not only tell you what I just wrote, they will “advise” you on which way to go based on your business and what you need to do for the least amount of taxes paid to the IRS at the end of the year. Good luck

I agree with WalleyBuster. If you lease make sure you lease something with a high residual/ or resale value. If you decide to buy, it will cost you less at the buyout. What always gets me is knowing that as long as you’re in debt on the “asset” it’s not really an asset at all is it?

I leased once and did not enjoy it. At that time, I was putting 25 – 30K on my vehicle annually. You can write a lease for any number of annual miles, residual value, etc, but to me I was constantly worrying about the mileage.

In Mike’s case, with a low mileage truck, that sit’s in his driveway much of the week, a lease might very well make sense and not be a bother.

The case above of a purchase of a $13,500 truck vs. a lease really doesn’t compare apples to apples. It’s an option to buy a used vehicle and actually doing this gets one through the biggest years of depreciating value.

But if the question is buy a $50,000 new truck vs. lease, at the end of the buy, you now own a $10,000 truck and paid $50,000 plus interest. In a lease, you own nothing and are out only the payments. If you turn over a car/truck every 2-3 years, leasing is the way to go.

But for the amount of miles I put on, I doubt I’ll lease again soon!!

ET

My experience with leasing was I put to many miles on the vehicle and at the end of lease was left with no choice but to buy it. Someone mentioned it in an earlier post and I found his statement very true that you will be watching the mileage closely as the penalty for going over the mileage allowance is pretty high. When you check into the “low cost leases” I think you will find that the miles allowed are very low, if you adjust the lease to higher miles, it can get expensive fast. The dealers can negotiate the leases so don’t accept the first offer. Good luck.

It comes down to mileage in a business setting. I put on a lot of miles and for me my CPA told me to never lease not when I can deduct .48 cents a mile. I also keep my work vehicles in good condtion my last van I sold was a 2001 Chevy 3500 with 245000 and I still got $4500 back from it considering I paid $9,800 used with 93,000 on it. So I got to deduct from my taxes over the course of ownership $72,480.00. I will never buy new I look at my vehicles as a tax right off taking mileage.

Tom has it exactly right per above.

Guys, just to clearify, Mike is a business owner so how you feel about leasing as an individual consumer is not relevant.

Mike, you have to go to a CPA with the variables. There is no one size fits all answer for a business. Your CPA will need to know:

– Mileage you do per year.
– If this isn’t your regular CPA, you’ll need to open up the books somewhat to give him/her a look at your overall P&L, cash flow, etc.
– Leasing quotes for the vehicle you want including all relevant factors like included maintainance, mileage overage charges, buyout details, blah, blah, blah.
– Purchasing price.

From there, the CPA will be able to give you the scenarios.

There is no generally correct answer, it all depends on the business and the details matter. IMO this one is worth getting right as you could be throwing away significant amounts of money.

Grouse

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It comes down to mileage in a business setting. I put on a lot of miles and for me my CPA told me to never lease not when I can deduct .48 cents a mile. I also keep my work vehicles in good condtion my last van I sold was a 2001 Chevy 3500 with 245000 and I still got $4500 back from it considering I paid $9,800 used with 93,000 on it. So I got to deduct from my taxes over the course of ownership $72,480.00. I will never buy new I look at my vehicles as a tax right off taking mileage.

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That dollar amount is assuming 100% business use. May or may not be correct. The $.48 per mile though is not correct. The last time it was under $.50 was 2007 at $.485. The SMR is adjusted annually (sometimes more often.)

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It comes down to mileage in a business setting. I put on a lot of miles and for me my CPA told me to never lease not when I can deduct .48 cents a mile. I also keep my work vehicles in good condtion my last van I sold was a 2001 Chevy 3500 with 245000 and I still got $4500 back from it considering I paid $9,800 used with 93,000 on it. So I got to deduct from my taxes over the course of ownership $72,480.00. I will never buy new I look at my vehicles as a tax right off taking mileage.

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That dollar amount is assuming 100% business use. May or may not be correct. The $.48 per mile though is not correct. The last time it was under $.50 was 2007 at $.485. The SMR is adjusted annually (sometimes more often.)

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I was taking an average over the use of the van at .48 cents a mile and It was strictly business I have private vehicle for personnel use.

Lease = Fleece.