If you lease an automobile and use it for your business 100
percent of the time, you can deduct the entire amount of your lease
payments. Of course, if you only use the
vehicle for business 80 percent of the time, then you can only deduct 80
percent of the lease payments.
The tax code requires an add-back to income of an
“inclusion” amount based on tables issued by the IRS. The effect is to limit the deduction in a way
comparable to the annual ‘luxury” car limits that apply to vehicles you
purchase. The IRS recently issued new
tables for 2013 (IRS Revenue Procedure 2013-21) which can be found at www.irs.gov/pub/irs-drop/rp-13-21.pdf.
The add-back amount is modest, but you still need to
consider it when planning to buy or lease a vehicle.