Tax Benefits of Leasing a Car vs Buying a Car for Your Business

Tax Benefits of Leasing a Car vs Buying a Car for Your Business

When it comes to acquiring a vehicle for your business, one of the most important questions is: Should I lease or buy—and which option offers better tax benefits?

The answer depends on how you plan to use the vehicle, your cash flow, and how aggressive you want to be with tax deductions. Both leasing and buying have distinct financial and tax advantages that can impact your bottom line differently.

At Hogan CPA Financial Services, we help business owners across industries make smart, strategic decisions when it comes to vehicles, equipment, and real estate. Here’s a closer look at how the tax advantages of leasing vs. buying stack up.

Leasing a Vehicle: Tax Benefits

When you lease a business vehicle, you don’t own the asset—you’re essentially renting it for a set term. This can offer several tax advantages, especially for small and mid-sized businesses.

1. Lease Payments Are Fully Deductible (In Most Cases)

If the vehicle is used 100% for business, the entire lease payment is deductible as a business expense. If it’s used partially for business, only the business-use portion is deductible.

2. Lower Monthly Costs Help With Cash Flow

Leases often come with lower upfront and monthly costs compared to purchasing, which helps maintain stronger liquidity. That can be especially helpful if your business is scaling or managing multiple vehicles.

3. No Depreciation to Track

Unlike ownership, you don’t need to calculate depreciation. Lease payments can be directly expensed, which simplifies your bookkeeping.

4. Section 280F Limitations May Still Apply

Keep in mind, if the car is considered a “luxury vehicle” under IRS guidelines, deduction limits may apply even on leases.

Buying a Vehicle: Tax Advantages

Purchasing a vehicle (outright or through financing) gives your business full ownership—along with longer-term benefits, especially when it comes to depreciation.

1. Section 179 Deduction and Bonus Depreciation

One of the biggest advantages of buying is the ability to take a large upfront deduction using Section 179. In 2025, you may be able to deduct up to $30,000 or more depending on the vehicle type and IRS limits.

This is especially beneficial for trucks, vans, or SUVs used in construction, real estate, or field service businesses.

Real estate tax planning clients, for example, may benefit from owning vehicles used for showings, property inspections, or field work—qualifying them for bonus depreciation alongside other real estate deductions.

2. Long-Term Value and Equity

When you buy, your business retains the value of the vehicle, which can later be resold or traded in. While cars depreciate quickly, this asset still holds potential value beyond the loan term.

3. Mileage or Actual Expenses—Your Choice

With ownership, you have more flexibility in choosing whether to deduct mileage (IRS standard rate) or actual expenses like gas, maintenance, insurance, and depreciation.

Which Option Is Right for Your Business?

If you want lower monthly payments and consistent upgrades, leasing may be better. If you’re focused on maximizing deductions and long-term value, buying might be the smarter route.

A personalized strategy from an experienced CPA can help you choose the option that best supports your business growth and tax planning goals.

Let’s Plan Your Tax-Smart Vehicle Strategy

Whether you’re leasing a car for client meetings or buying a fleet for your service team, aligning your vehicle choice with your tax strategy is key. Our team at Hogan CPA Financial Services specializes in helping business owners like you optimize deductions and minimize tax liability—without guesswork.

Need help deciding? Contact us today to schedule a consultation and get a customized plan for your business vehicle needs.