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Hello and thank you for using Just Answer,You must spread any advance payments over the entire lease period. You cannot deduct any payments you make to buy a car, truck, or van even if the payments are called lease payments. When you trade in an old car for a new one, the transaction is considered a like-kind exchange. Generally, no gain or loss is recognized. In a trade-in situation, your basis in the new property is generally your adjusted basis in the old property plus any additional amount you pay. As you were leasing the new vehicle, you spread the $7000 out over the term of the lease.
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Another expert suggested I advise you on the inclusion for leased vehicles. That's the amount of money that is added back into income when you use a leased vehicle in your business. To do this, you do not add an amount to income. Instead, you reduce your deduction for your lease payment. The purpose is to equalize the tax effect between depreciating an owned vehicle and writing off a leased vehicle.The IRS publication 463 has the tables for this.
The inclusion amount is a percentage of part of the fair market value of the leased vehicle multiplied by the percentage of business and investment use of the vehicle for the tax year. It is prorated for the number of days of the lease term in the tax year.
Thnaks again and let me know if you need more info.
What do you mean by "you cannot deduct any payments you make to buy a vehicle even if the payments are called lease payments" ? Are you saying auto lease expenses are not considered a deductible expense?
No, the amounts you would pay to buy it. Some places have actually entered an agreement where after so many "lease payments" you are the owner. Those are not true leases.
Ah ok, got it. Thanks.