Can Taxes Paid on a Leased Vehicle Be Written Off on Federal Taxes?
The IRS allows the deduction of car expenses, whether you own or lease, as long as you use the vehicle for business purposes. The general theory is that any costs associated with the production of income are deductible. Of course, some rules and conditions are attached, and documenting your deductible expenses will help you get a clear idea of what you might expect as a write-off.
Standard Mileage vs. Actual Costs
To deduct the expense of using a car, you normally have to choose either a standard mileage rate or keep a record of your actual expenses. In 2012, the IRS mileage rate reached 55.5 cents a mile. If you use the standard mileage rate, you must stick to it throughout the period of time you lease the vehicle -- you can't use actual expenses in the first year of a lease and then switch to the standard mileage rate in later years.
If you lease a vehicle and use it for both business and personal trips, you must apportion the business driving. If you use the car 50 percent for business and 50 percent for personal trips, you can deduct half the actual expenses. Keep some kind of trip log, showing dates, miles driven and purpose of the trip, to fully document the apportioned use of the vehicle.
Deductible expenses for a leased vehicle include all reasonable, ordinary and necessary expenses of operating it. This would include state sales taxes on the lease payment and the lease payment itself, as well as any license and registration fees required to keep legal possession of the vehicle during the lease term. If you live in a state that requires payment of all lease-payment sales taxes up front (Ohio), or sales tax on the entire market value of the vehicle (Illinois and Texas), you can deduct this expense in the year you signed the lease and made the payments.
Conditions and Inclusions
You can't deduct expenses for which you're reimbursed by an employer. In addition, you may not use the standard mileage rate if you hire out the vehicle as a limo or taxi, if you run a fleet of five or more vehicles or if you claim depreciation on the vehicle. The IRS also requires that you reduce your deduction if you lease a vehicle over a certain market value for more than 30 days. In 2012, that value was $18,500 for cars and $19,000 for trucks. The amount of this "inclusion" is apportioned both for the number of days in the year you lease the vehicle, and the percentage of time it is used for business.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.