I have been folowing this thread from the begining. I just like most of you here, have both leased and purchased. The past few go-arounds I have leased. I have been thinking I am just losing my interest in cars, they have not brought me the excitement like in the past. This time I decided to purchase, not lease, and you know what, the excitement is back. I figured it out, it is called "Pride of ownership". I am enjoying pampering this new car, just like some cars past, waxing, washing, etc. It is not always about money, who is getting the best deal, where the best deduction is. There is a lot to be said about it.

 

That's actually an excellent point Philip and very appropriate when talking about he GL.

You can stop by anytime. ML, GL, no matter, you are welcome!

 

Philip12, that is also a good point. You always have more respect fpr something you own.

I called my accountant yesterday to re-confirm what I had written in the above post and what I said was re-confirmed.

The only miles that you put on a car that are tax deductible are what he calls "business point to business point miles." So in my case, as a physician, I can't even deduct the mileage driving from my home to the office in the morning. I couldn't deduct the mileage if I drove from my house to a hospital in the morning. However, if I leave the first hospital and drive to a second hospital, I can decuct the mileage from hospital A to hospital B, because that is "business point to business point mileage." I think you can make these deductions whether you own or lease a car as long as the car useage fits the rules. So in my case I don't "business" drive enough to get tax dedcutions. I also could deduct miles driven for continuing education.

It seems to me that the only people who can benefit from the tax rules are sales people who are on the road all the time as their business. And that makes sense, the IRS wants to limit the deduction to people who's business requires the driving. It's the same as trying to legally deduct costs of a "home office", it's hard to do legally, by design of the IRS.

But isn't that really fair. Remember, any tax deduction that anyone else gets, is ultimatley being paid for by someone else in their taxes.

 

There seems to be an anti-lease theme going here.

#1 I lease AND I pamper and love my GL. I have as much or more pride in that thing than most that own them. That chest pounding "I own it" is comical!

#2 99% of cars are not investments, therefore they have NO equity! What some of you are calling equity is not what I would call equity. If you owe $20K and you sell a car for $25K - that is not equity. It's getting $5K back that you already paid. Equity is something you get above the original purchase price and all costs incurred. Fact is, if you trade every 2-3 years - you are possibly wasting money that could be sitting in a growth product that would help make the payments on the vehicle.

#3 There are very legit deductions for leasing for the right people. Owning for a business person allows a 5 year depreciation. Most do not keep cars that long, therefore can only depreciate 3 years worth...so if you do not drive a gazillion miles - you should do the math on a lease.

#4 The point about dealers making more money on a lease - well, you can negotiate the cap cost of a lease - therefore the cost of the vehicle would be the same if purchased. The fees generally go to the finance company, not the dealer. The return of the customer is true if you buy or lease. The re-sale of the first leased vehicle is not a concern for the first customer, I'm happy the dealer will have a nice clear car to sell and make money on - I want them in business next time I am shopping. And if the residual is lower than what they are selling for at the time I have the option of buying it and re-selling for a profit...yes, it does happen!

#5 Many people on this board paid thousands for extended warranties. Those that lease the right way, do not have too...we are always under warranty.

 

[QUOTE=gordongl450;2523168
It's the same as trying to legally deduct costs of a "home office", it's hard to do legally, by design of the IRS.[/QUOTE]

Hard to do legally? It's part of the tax code and quite simple if you do not get greedy. % of house used for business...pretty simple stuff. A good accountant that is worth her or his salt will work through the "design of the IRS" and make sure their customers are not overpaying their taxes.

 

This is exactly why I lease cars. I like the set residual value at the end. I know exactly how much depreciation I am incurring over the term. 9 times out of 10, the residual value is less than the car is worth retail.

Also, sales tax. On a purchase (assuming no trade) you pay 100% up front. On a lease, you pay it monthly. Granted you do pay tax on the interest but that is a rather small incremental piece.

 

 

 

Depending on your business situation you may also be able to take a accelerated write off in one year. The IRS allows this under certain conditions for equipment purchases. In the past I have been able to ues this deduction to help reduce end of year taxes. The catch of course is that when you sell it you are liable for tax on the amount over the write off.

 

Interesting viewpoint. Just because you buy new car every 3 yrs and do not buy extended warranties does not make your car ownership less expensive.. The only way your car costs will come down is if you keep the car for 5 plus years and do buy extended warranties.

Also you miss the point on equity.. yes equity is only built when something appreciates, but in my analysis, I was referring to equity as value of the car over and above what you owe the bank when you trade.. and if you do that math over 10 plus yrs of car ownership and compare lease every three years vs buy and trade every 3 yrs, you will come ahead if you buy unless of course your business situation allows you to deduct all lease payments.

 

Exactly - if you sell within the 5 year depreciation allowed you get dinged by the IRS if you accelerated your deduction.

 

No, I would argue that you would not come out ahead. And I get the point...I just don't think people should refer to it as "equity". Buying a car such as a GL takes considerable money down (trade or not) to achieve a decent payment. All money in...I think if you negotiate the deals the same way, and don't drive a ton of miles, and want a new car every 2-3 years - I think a lease is great. But that is a matter of opinion and my years of ownership vs. lease.

 

I was looking at a GL and went through the lease-buy options of the GL450 vs the GL550. MB USA has a money factor on leases on the 550 that was almost double that of the 450 and the residual is lower on the 550 so the lease payments were much higher. When I rolled up all the number I was going to by paying about $400 per month more for a GL550 compared to a fully loaded GL450 although they were only about $6,000 apart on MSRP. Don't assume that the lease terms are the same for each varient of a model.

If buying you can depreciate the total cost of the vehicle over 5 years along with yearly operating costs, gas, oil, maintenance, car washes, XM, upgardes, etc.. as a portion of you business use. I was audited back a few years ago with my ML430 and I had to submit copies of my trip records -mileage report along with a copy of the door sticker that showed that the GVW was over the threshold, I think by about 28 pounds.

Keep in mind when leasing that while you can negotiate the cost of the vehicle the residual value is based on a % of MSRP and not what you negotiated so at the end of the lease term you should try and negotiate again on the price or just walk away.

 

BJ021,

Here is the link to the 31 page PDF file from the IRS on how to take a tax deduction for the part of your home you use for business?

http://www.irs.gov/pub/irs-pdf/p587.pdf

Hardly "quite simple" as you said. Yes an accountant can figure it out, that's what they do.

My point was that the IRS puts "a lot of hoops to jump through" to get the deductions legally. They want to limit the people who can take the deduction.

 

I agree Gordon. I've run my business out of my home office exclusively for the past 5 years and my accountant has always advised me not to take the home office deduction. As I've said before, he worked for the IRS for several years, and in his opinion, the home office deduction is more trouble than it's worth.

 

Agreed on the hoops, also nothing is "quite simple" with the IRS I know... but I want my accountant working as hard for his money as I do for mine. It's their job to know the hoops and work the system.

 

Lease/Purchase rules vary by state. In Maryland, if you do a standard lease you pay sales tax on the full value of the vehicle. Also, if you decide to buy the vehicle at the end of the lease, you pay the sales tax again on the new purchase price.

Now an argument for leasing. My wife had a fender bender with our leased Audi. It was repaired to perfection (at least to the visible eye.) Unfortunately, when I tried to sell the Audi 6 months before lease-end (42 mo), the buyer had a meter that detected the change in paint thickness. The price dropped to $4K less than payoff, so it turned out to be cheaper to keep the car until the end of the lease (only $2850 in payments.) Leases have a negoiated resale value that protects you from accident history based loss of value.

That said, I normally keep my cars 3-4 years & my mileage is predictable. So, I always compare total lease cost versus total finance cost. My GL (very high residual/low MF) was cheaper to lease, but my SL (high residual/high MF) was cheaper to finance (low APR.) Of course if I get in a fender bender with the SL, I may end up losing $5k on the deal.

 

Wow, how right you are! I have seen the paint thickness check on 911, etc. but it could be a problem. That is the best reason to lease.

 

That's good information. Maybe one should perform the paint thickness test when the repairs are made. Seems to me that they should be required to meet or exceed factory specs or do it over again.

 

Major bummer on the tax issue in Maryland...their congress needs to fix that! Over taxation & double taxation! Ouch.

Agreed on the car problems and leasing - you get a near lemon or just a bunch of issues and you can eventually walk away from the problem car if you leased. When you buy your stuck with it and can only hope you can get out of it without too much loss.

 

It all comes down to your car buying behavior.
Forget the baloon, I see that as a rip-off.
I lease all my vehicles, except my Prius because I'm planning on keeping the car for five years, and more. The same goes for my 3 BMW's, I paid cash, and I don't think I'll sell them anytime soon. Everything else I can't stand it after 2-3 years, I change vehicles that often.

 

Finance Rates:

Rates have been around 6.35% recently...that's on the low side. Credit unions and special deals are lower, i.e. MBUSA is currently offering 4.99% on certain models. Although, that doesn't help if you want to buy a model like the 550, which currently has no special offers.

I found Chase to currently have the lowest auto rate. They just gave me 5.84% and knocked off another .25 if you have your payment deducted from a Chase account. So the final rate was 5.59% for 60 months. That's pretty dang good.

 

thats a great interest rate. in the LA area the lowest i found was 5.99, 60 months, 100% LTV(no down payment). just purchased GL550

 

jgmd, that's a good point. The LTV was 90% so they expected a 10% down payment otherwise the rate would increase.