• Taxpayer who owns an auto can choose the standard mileage rate in the first year the auto is placed in service and then switch to the actual expense method in a later year if it becomes more favorable. Taxpayers who lease an auto may also choose the standard mileage rate in the first year, but must then use it for the life of the lease
• Taxpayer intends to keep the vehicle more than 4 years, or until it is ready for the junkyard.
• Vehicle will be driven more than 15,000 miles per year. Most lease contracts have a 15,000 mile limit with an 8 cents to 15 cents charge for every excess mile.
• Taxpayer has cash for the purchase or downpayment and the car is not subject to the "Luxury Auto" rules.

• Lower monthly payments and little or no money down. This leaves a business owner with more cash to invest in business. Monthly lease payments usually average about one-third less than loan payments on a comparable vehicle.
• Figuring deductions on a leased auto is much simpler that calculating allowable depreciation deductions.
• Taxpayers who trade in their business autos every two or three years usually end up with realized loss that they cannot deduct. The taxpayer's basis ) after the limited depreciation deductions) exceeds the trade-in value, but the loss is not recognized due to the Section 1031 like-kind exchange rules.
• Taxpayer needs or desires a high-priced vehicle, or one that is difficult to resell. Tax advantage of leasing over buying increase with a car's value and percentage of business use. More car for less money.
• Leasing is suited to the taxpayer who desire a new car every few years and who would borrow to pay for a new car.
• Service, convenience, and flexibility.
• Off balance-sheet financing.
• Cost of interest is included in lease payments (100% deductible) interest is not deductible for employees who purchase their vehicles.
• When it is time for a new car, there are no worries about disposing of the old one.

Negotiate Before Signing Lease Agreement

• Read the lease contract carefully to avoid hidden costs and penalty situations. Charges for excess mileage, wear, and termination fees may be negotiable. Make certain the lease may be terminated early, and what penalty may be involved, if any.
• Get a closed-end lease that establishes the vehicle's value at the end of the lease. Open-end leases leave the value to be determined and hold the lessee responsible for any shortfall.
• Identify additional charges if vehicle is turned in early.
• Negotiate the purchase price (capitalized costs) that leasing companies use to calculate lease payments. The capitalized cost should be lower than the auto's sticker price and closer to the dealer's invoice price.
• Monthly lease payments are based on the auto's capitalized cost plus finance charges less residual value.
• Purchase options at the end of the lease, need to be written into the contract up front.
• Verify the "rate" or "money factor" of the lease. The lower the rate the better. Most dealers do business with several finance companies and can shop around for the lowest rate.
• Avoid "capitalized cost reduction" which is a disguised downpayment. It is usually not required.
• Check mileage limitations and extra costs involved for exceeding the mileage limitations. About 10 cents per mile is charged on average. If planning on exceeding lease mileage allowance, usually 15,000 miles/year, it is cheaper to factor the extra miles into the monthly payment. Unused prepaid miles are usually refunded.
• Acquire extra "gap" insurance to cover immediate depreciation a vehicle suffers right off the lot. If the vehicle is stolen or totaled in the first few months, the insurance payoff will not cover the difference between the vehicle's value and what the lessee owes.
• A one time administrative or lease-acquisition fee from $250 to $500 is normally charged by the finance company. Don't pay too much.
• Compare: It is not unusual to find big differences in terms for the same vehicle from lessors in the same area. Locate a dealer or leasing company with an established reputation by talking to people who have leased from the company and by contacting the Better Business Bureau.
• Make sure the warranty covers the entire lease term.