Purchase or lease a car?

Barry Dolowich for the Monteray Herald writes: Question: My wife and I are both shopping for new cars, but we cannot decide if we are better off purchasing or leasing. I use my car for both business and personal travel and my wife uses her car only for personal travel. For tax purposes, which is more advantageous, purchasing or leasing?

Answer: The choice between purchasing or leasing a car involves personal, economic and business considerations. Some of the general considerations for choosing (both tax-wise and economically) whether to buy or lease your car are:

· If the substantial use of your car is for business purposes, as compared to personal use, you generally can receive more of a tax deduction on the business portion if you lease the car.

· Even if the car is mostly for personal use, but is expensive, you still may achieve a better tax deduction by leasing instead of purchasing.

· Because cars depreciate in value so quickly in their newer years, short-term leasing makes sense if you tend to trade in cars often.

· If you generally hold on to your cars for five or more years, you may be better off purchasing the car. However, if you use your car primarily for business purposes, you may be economically better off with leasing to achieve higher tax deductions.

· Leases generally contain an "excess" mileage provision. This provision allows the lessor to charge you an additional amount per mile driven in excess of a stated allowed maximum annual mileage amount (usually 10,000 or 12,000 miles per year). If you anticipate driving in excess of the stated annual mileage amount allowed per the lease contract, you may be better off purchasing the car rather than leasing.

· Leases generally require less upfront money than a down payment toward the purchase of a car. Further, assuming the same initial cash outflow, the monthly lease payments are usually less than the monthly loan payments. Of course, at the end of the lease, you will have no equity or asset. Whereas, with purchasing, after you make your last loan payment, you will own the car outright.

As you can see from the above, the choice of whether to lease or purchase may not always be clear-cut. You may really need to crunch some numbers after serious consideration of your personal tastes, economic and business situation.