There are many decisions to make when car shopping. Do you want a new or used car? An SUV or a sedan? One factor that some car shoppers tend to overlook is the question of lease versus buy. This can be an important factor in your decision, so let’s look at some details and the pros and cons of leasing versus buying a car.
Sales Tax
For this comparison, we focused on the state of Massachusetts, where most of our customers are located. Massachusetts has a sales tax of 6.25% of the vehicle’s value at the time of sale. If you trade in a vehicle, you'll only pay tax on the difference between your trade-in value and the car being purchased. For example, if you trade in a car worth $15,000 and you're buying a car worth $35,000, then you will only pay taxes on the $20,000 difference, which would be $1,200 in taxes.
Lease Tax
For a leased car, you will need to pay Massachusetts' 6.25% sales tax on the lease price, which would be applied to your monthly payment. Here’s an example:
You start a 3-year lease on a car with a value of $20,000 and a 50% residual. The lease would be the value minus the residual, or $20,000 minus $10,000, which is $10,000. It spans 3 years or 36 months, so $10,000 divided by 36 means a monthly payment of $277.78. That payment would be taxed at 6.25%, which is $17.36 per month. Over the course of your lease, you will pay $624.96 in taxes.
Company Vehicles
With a company vehicle, you may deduct the entire cost of operation used for business from your taxes, no matter if you lease or buy. You can use the standard mileage rate method or the actual expense method, which is described in detail on the IRS webpage. If you qualify for both, you can run the math and see which one gives you a larger deduction.
A few more notes to consider:
- Vehicle lease payments are tax-deductible.
- Only the interest on a vehicle loan is deductible as a business expense.
- Both leased and owned vehicles may be eligible for depreciation.
If you have more questions about leasing versus buying a car, call or visit Route 9 Nissan. At our Nissan finance center, you can learn about our current new and pre-owned automotive financing offers as well as any Nissan lease plans that we have going on. With our experts by your side, you can secure a fair payment option for your favorite Nissan sedan or SUV. Call or stop by today!