I have been using the standard mileage rate for my 11 year old auto.
80% of the approx 8000 miles I drive are for my rental business purposes (other 20 % being personal). I am now looking into leasing a car.
Can someone explain to me the the different expenses that can be deducted using a) the standard mileage method b) actual method in the case of a lease purchase.
Lets assume my monthly lease if is about $500 +tax and all standard maintenance is covered during the lease, which of the above two methods would prove to provide a higher deduction?
Using today's mileage rate of 55.5 cents and assuming it exists for a full tax year, your deductible expense for that 12 months is $3552 plus parking fees and tolls that are business related.
Assuming a 6% tax rate, your cost of the lease is $530 x 12 = $6360. 80% of $6360 is $5088. You may not be able to deduct the whole $5088. This will depend on the FMV of the vehicle. The FMV is typically the capitalized cost on your lease agreement. Rather than go into how you might have to adjust your deduction, you can read about it with examples in IRS Pub 463 pages 23 and 24. You would only have to make an adjustment if the car has a FMV greater than $18,500 (2010 value).
If you look at the Pub and the table in Appendix A where you get the amount of the adjustment, you will see that the amounts are not very large. Therefore, deducting the business portion of lease payments will exceed the standard mileage method. In addition you can also deduct the business portion of actual expenses of gas and oil, parking, tolls, insurance, registration, personal property taxes and any maintenance not provided by the lessor. See Pub 463 for a more detailed list.
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