If you are leasing your truck, you can deduct the entire amount of the payment each month.
Example 1: Tom leased his truck Jan. 1. He is paying $2,000 per month. His total deduction is $24,000 ($2,000 x 12).
On the other hand, if you are purchasing your truck, you can deduct the depreciation on the total cost of the truck and the interest charges that are included in your payment. The truck is depreciated in accelerated fashion over three years.
Example 2: Tom purchased his truck Jan. 1. The price is $60,000. He is paying $2,000 per month for four years to pay off the truck, 80% of which is interest in the first year. His depreciation deduction in year one is 33% of $60,000, or $20,000. His interest deduction is $19,200. His total deduction is $39,200.
As these examples illustrate, the owner-operator who is purchasing his truck has deductions in the first year that are $10,400 greater than the leasing operator. But in the fourth year, the lease still offers $24,000 per year in deductions, and the purchaser will have just $4,444 of depreciation left plus interest of $4,800 to deduct.
The purchaser gets higher deductions in the first two years with the fourth year not even close to the lease taxpayer. The net effect is a tax delay for the owner-operator purchasing the truck. The tax will be paid in later years, not eliminated by depreciation. Note also that if you trade every three years, erosion of depreciation may have set in by your fourth or fifth trade, and you’ve lost much of the tax benefit enjoyed by people who buy less often.
On the other hand, considered financially, it usually costs less to buy in the long term. Take, for example, the common five-year lease period measured against the likewise common five-year note on a new truck.
Assuming a purchase price of $118,000 for a used aerodynamic truck with a 70-inch sleeper and a comparable lease of the same truck, tax savings are greater with the lease -- almost $7,000 more over five years.
However, all other things being equal, it makes more sense financially to buy since the total adjusted cost of the vehicle with conventional loan financing is $10,000 less than the cost of the leased vehicle after a 20% buyout at the end of the term.
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