Owning a car usually costs less than leasing

August 25, 2012

Thinking about leasing a car? Discover why owning outright might make more financial sense.

Q: Are there any financial benefits to leasing my car through my practice?

A: In most cases, leasing or owning an automobile through the medical practice does not result in any tax benefits. Even if the practice were to pay all costs of the car, any non business-related use must pass through as income to you, the individual physician.

It is possible to argue that having the practice own or lease the car allows a "cleaner" personal tax return (one without any automobile-related information.) In addition, leasing may result in larger tax deductions for depreciation, especially for more expensive cars. (You should confirm this with your accountant, because it applies only in certain cases).

Using a mortgage calculator, you can try comparing the cost of leasing to the cost of owning by running the ownership option as a 5 to 7 year mortgage with a low rate of interest-say, 3% to 5%.

If the monthly cost is not much less than the cost of leasing, then leasing may be an acceptable option from a financial standpoint. If the leasing cost turns out to be significantly higher than the ownership cost, then at least you will have a good idea of how much acquiring a new car every few years really costs.

Some physicians buy high-quality automobiles that are around 2 years old and were previously leased to someone else, keep them for 2 to 3 years, then trade them in for another used, but fairly new car. This can be a good strategy for acquiring a nice car every 2 to 3 years at a much-reduced cost.

Often these cars come with good warranties and service packages. You can calculate the approximate cost of ownership per year to compare this strategy with the choices of leasing or buying new cars.

In my view the least expensive approach to operating an automobile is simply to buy an inexpensive-to-moderately-priced vehicle and use it for its entire useful life. Any other approach generally will cost you more money- even though it may provide the pleasure of driving a new automobile. You will have to decide how much that pleasure is worth to you.

-Steven Podnos, MD, CFP

Podnos is principal of Wealth Management LLC in Merritt Island, Florida.