Tax Benefits to Financing vs. Leasing

Financing and leasing are both options you can use to get your next vehicle and many people wonder whether there are any tax implications for both of these options. The answer? Both options have implications for your taxes and the right option for you depends on your economic means including how much you can afford a large payment and other factors such as your credit. Keep reading to learn about the tax benefits of financing versus leasing, including how they both affect your taxes.

Apply For Financing

What is Financing?

Financing a car is the more traditional method you can use when you get a new car. Using this method, you often look for a loan with good rates. The loan pays for the car, then you make payments toward the total value of the loan, plus any interest and other fees for processing the loan. When you get a loan, you may shop around for different interest rates and repayment periods so you can get the best deal. You typically pay loans on a monthly basis to finance your vehicle.

Factors that can affect how much you pay each month include the total amount of the loan, interest rates, credit score, down payment amount, and the total length of the loan. When you get a loan from Hyundai of Auburn’s finance center, we discuss each of these options and help you get an excellent rate for your loan so you can drive your new car home happily. We also offer additional benefits when you choose to finance your vehicle with us, including additional warranties and maintenance plans to keep your vehicle in the best condition possible.

What is Leasing?

Leasing is a way to reduce the total monthly payments you make toward a vehicle. With this option, you don’t own the car but get to drive it for a specified period of time. For example, you may get a lease agreement with your loan provider that says you get to drive the new car for up to two years and then have to return it to the dealership. Sometimes, you can drive the car for the specified period in the contract and then pay for its remaining value at the end of the lease contract to own the car.

Otherwise, you can get a new vehicle on another lease, keeping you updated with newer models for as long as your lease exists. At Hyundai of Auburn, we offer leases that tend to be 24 to 48 months long, after which you can choose another vehicle to lease for the same payments on your first contract as long as you maintain good standing with the terms of the contract. This allows you to experience new vehicles and consistently low prices on your payments each month. This also can help keep repair costs down, since your vehicle is always modern.

Benefits of Financing for Tax Purposes

There’s one way your vehicle purchase can benefit your taxes. First, purchasing a car makes it become part of your personal assets and is subject to taxes based on its value. This means that your taxes are directly affected by a new vehicle purchase and are likely to rise as a new car represents significant value. Depending on how you use the vehicle, you can deduct some of its value from your taxes. For example, if you’re using the vehicle as part of a business, you can deduct some cost from your taxes using two deduction methods.

The first is the standard mileage rate deduction, where you can claim the mileage driven for business purposes on your tax forms. The second method uses the actual cost of the vehicle each year. This method sees diminishing returns each year, as the value of the vehicle depreciates. When you finance a vehicle, you can swap between these two methods each time you file taxes.

Benefits of Leasing for Tax Purposes

Similarly, leasing a vehicle also has the benefit of business use. If you’re using a leased vehicle or a fleet of vehicles for business purposes, then you can deduct the payments for the vehicle’s value from your taxes when you file them each year. You can also choose the mileage deduction option, but unlike with financing, you can’t switch between the two. Further, these options only apply to standard leasing contracts and not lease-to-own contracts. This means that you have more limitations only your tax benefits when you lease a vehicle.

Additional Benefits of Financing

Beyond the tax benefits, there are also several benefits to financing a vehicle. First, you own the vehicle as soon as you drive it away from the dealership as long as you’re within good standing with your loan provider. Once you complete your loan payments, then the vehicle is yours to keep for as long as you want. Since the vehicle is yours, you can sell or trade it whenever you want and its loans travel with it.

Other benefits of financing your vehicle include being able to drive it for as many miles as you need and being able to modify the vehicle as long as you don’t violate any warranties.

Additional Benefits of Leasing

Leasing also has some benefits beyond those you get for taxes. First, leasing often gives you lower monthly payments for your vehicle and can ensure you always have a relatively newer vehicle compared to financing. You also are likely to have lower maintenance costs because the vehicles you drive are newer. Finally, if you don’t like the car you lease, you can change it when the lease ends for a new vehicle.

Now that you’ve learned about the tax benefits of financing versus leasing a vehicle, plus other benefits you can explore, you can visit Hyundai of Auburn to discuss your financing and leasing options. While there, you can also explore the new inventory of vehicles you can choose from and find parts and services for your current vehicle. Contact us today to learn more.

Image by Martin Katler is licensed with Unsplash License