Business Vehicle: Buy It or Lease It for the Bigger Tax Break?
Running a vehicle for business lets you deduct either depreciation (if you buy) or lease payments (if you lease), and both can meaningfully cut your tax bill. The catch is the IRS luxury auto depreciation limit, which applies to standard passenger vehicles regardless of price. Even with bonus depreciation boosting the first-year amount, the total depreciation you can claim over five years tops out at roughly $66,000-$70,000. Leased vehicles face a similar practical ceiling through the lease inclusion amount rules for higher-priced cars. Because the same kind of cap applies to both paths, the 5-year deductible total — and the resulting tax savings — often end up closer than people expect.
Enter your vehicle's purchase price, annual lease payment, and marginal business tax rate, and this tool estimates the 5-year deductible amount and tax savings for buying versus leasing, then tells you which comes out ahead on taxes. Keep in mind this only compares the tax angle — upfront cash outlay, financing interest, and resale value are separate factors that belong in your overall decision.
Frequently Asked Questions
The IRS caps annual depreciation for passenger vehicles at roughly $66,000-$70,000 total over 5 years, no matter how expensive the car is.
The luxury auto cap limits both paths similarly, so 5-year tax savings are often close. Leasing usually differs more in upfront cash flow than in taxes.
No — those are exempt from the luxury auto caps and can often be expensed more aggressively under Section 179. This tool covers standard passenger vehicles.
※ Simplified estimate; actual depreciation limits, bonus depreciation percentages, and lease inclusion amounts change by year. Consult a tax professional.