Why Buy?

Y2K model cars speed into showrooms this month, sparking a burning question: Should you buy or lease your business car? Leasing may be the more affordable avenue, but it leaves you with nothing at lease-end. Tax implications may help you determine which alternative is best.

If you buy a car and use it for business purposes, you may recover part of its cost through annual depreciation. The amount, however, depends on the method of depreciation used, the cost of the car, the year it's placed in service and the percentage of total mileage that's for business. For cars used more than half the time for business, an alternative to the common deduction (the Modified Accelerated Cost Recovery System, or MACRS) is the expensing deduction (Section 179 of the Internal Revenue Code), which replaces depreciation the first year, according to the American Institute of Certified Public Accountants (AICPA). Any part of the vehicle cost not recovered through first-year expensing can be recovered through depreciation deductions in subsequent years, the AICPA notes.