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Learn about Bonus Depreciation Allowance on Purchase of Leased Vehicles


The Tax Cuts and Jobs Act (TCJA) made two changes that mean 100% bonus depreciation is available on the vehicle you lease and then purchase.


Before: During the lease, you had no depreciable interest while you were leasing the vehicle. The lessor depreciated the vehicle. You, the lessee, paid rent.


Now: Bonus depreciation is now available for used property.

When you purchase a vehicle that you were leasing, you have not taken any depreciation on it, because you did not have a depreciable interest in it at any time but now that you have purchased a used vehicle you are now allowed to take depreciation and bonus depreciation. 


Example. You pay $8,000 for a pickup truck that you have been leasing for business purposes. The pickup truck has a gross vehicle weight rating of 6,531 pounds, and your mileage log proves 80 percent business use. You may use bonus depreciation to deduct the $6,400 business cost of the pickup ($8,000 x 80 percent).


Note the difference: As with prior law, with Section 179 expensing, you get no additional deductions. But with bonus depreciation, you can expense your entire business cost regardless of whether you purchase it during the lease term or at the end of the lease.


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