The TCJA made two changes that mean 100 percent bonus depreciation is available on the vehicle you lease and then purchase, regardless of whether you purchase it during the lease term or at the end of the lease. The two technical reasons you can do this are as follows:
1. During the lease, you had no depreciable interest.
2. Bonus depreciation is now available on used property.
Technically, the two changes work like this:
• While you were leasing the vehicle, you had no depreciable interest in the vehicle. The lessor depreciated the vehicle. You, the lessee, paid rent.
• Your purchase of the vehicle that you were leasing is the purchase of a vehicle that you had NOT used under the bonus depreciation law, because you did not have a depreciable interest in it at any time.
Here’s how it looks like in real life. . .
Example. You pay $32,000 for a pickup truck that you have been leasing for business purposes. The pickup truck has a gross vehicle weight rating of 6,531 pounds, and your mileage log proves 90 percent business use. You may use bonus depreciation to deduct the $28,800 business cost of the pickup ($32,000 x 90 percent).
Note the difference: As with prior law, with Section 179 expensing, you get no additional deductions. But with bonus depreciation, you can expense your entire business cost.
Takeaway
In conclusion, if your business leases a vehicle and is considering “to buy or not to buy”, consult a tax professional to calculate tax savings.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not understand the tax law enough to explain it to a fifth grader.
If you or someone you know is self-employed or a small business owner, please feel free to contact me by scheduling a call, or by emailing at [email protected].
Tatsiana B. Bender
Bender CPA, PLLC
Fort Worth, TX 76107
[email protected]
Phone: (817) 313-4352
Bender-CPA.com
