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When Should Lyft and Uber Drivers Lease Cars?

When Should Lyft and Uber Drivers Lease Cars?

After a careful review of IRS Publication 463, I have noticed that there are some situations when leasing a car can be better than owning a car for driving full time on rideshare services like Lyft, Uber, and Sidecar.

The below post assumes the driver is driving 100% of the time for business reasons.

Deductions based on Depreciation:

When you buy a new car for Uber, for example, you can’t claim the loan payments as a deduction as a car’s useful life is much longer than the loan repayment period. You would need to calculate the depreciation on the car. According to the IRS rules, you can only deduct so much every year from your taxes, even if you use the car 100% of the time for your business. If you use between 50-100%, you will calculate the maximum possible deduction and multiply that by the percentage of the time you drive it.

Here is the maximum depreciation deduction for cars (Trucks and Vans less than GVWR of 6000 lb is similar amounts)

Date Placed in Service1st Year2nd Year3rd Year4th and Later Years
2012-2013 $  11,160.00 $  5,100.00 $  3,050.00 $  1,875.00

The above chart is a gross over simplification of depreciation and the $11k figure in the first year assumes the tax payer has applied for a special depreciation allowance. You would actually deduct 5-15% off of the above figures and get your real deduction. The special depreciation allowance applies only for the first year the qualifying car is placed in service. To qualify for the allowance more than 50% of the use of the car must be in a qualified business use. A qualified business use is any use in your trade or business. It does not include use for the production of income (investment use). However, you do combine your business and investment use to compute your depreciation deduction for the tax year. To be a qualified car (including trucks and vans), the car must meet all of the following tests.

When Buying is better than leasing:

Calculation on Buying a 2015 Corolla at $20,000.

Calculation on Buying a 2015 Mercedes S-Class at $100,000

Conclusion:

Deductions Based on Lease Payments

You can deduct your lease payments of the vehicle you use for business purposes. Assuming 100% business use, you can deduct almost the entire lease payment.

Calculation on Leasing a 2015 Corolla at $20,000 value

Calculation on Leasing a 2015 Mercedes S-Class at $100,000 value

Note:

Instead of having the depreciation limits for purchased luxury vehicles as seen in the first example, you can deducts the full business use percentage of your lease payments adjusted by a just a small “inclusion amount” added back to income.

Conclusion:

Vehicles with GVWR over 6000 pounds

Gross Vehicle Weight Rating (GVWR) is the manufacturer’s specified fully loaded vehicle weight. Special rules apply to vehicles with a GVWR of over 6000 pounds. There are no depreciation limits on purchased vehicles with a GVWR over 6,000 pounds. Combine this with a Section 179 deduction and $25,000 of the vehicle cost can be deducted annually.

Calculation on Buying a 2015 Corolla at $20,000.

Calculation on Buying a 2015 Toyota Highlander LE at $30,000 (Seats 8), GVWR of 5600 lbs

Calculation on Buying a 2015 Toyota Sequoia LE at $30,000 (Seats 8), GVWR of 7100 lbs

Date Placed in Service1st Year2nd Year3rd Year4th and Later Years
2012-2013 $  25,000.00 + 50% of Residual $  5,100.00 $  3,050.00 $  1,875.00

Conclusion:

Additional Notes:

Summary:

This post only serves as an analysis to show various deductions side by side, rather than actual tax advice. Speak to your local certified tax professional before making any large purchases or changes to your business.

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