The trick is to get a $1 lease (where the terminal price to buy the car back is $1) and buy it with your personal dollar (incidentally, the local ferrari dealer showed how to set this up, and it is apparently a common practice)

Also, to clarify, "expensive car" for the IRS and most states is >$250K and none of the Tesla cars are that expensive.

Can you explain the lease trick?

Before I say anything, please understand that I'm not an accountant. However, my sister is, and she does my taxes. I'm a curious type, so I ask a lot of questions, and she doesn't mind. The trouble is that this stuff is very nuanced, so I often get the details wrong. I'm going to try and explain (in broad terms) why niggler's suggestion pushes the boundaries, based on my understanding.

First, there is no trick. There used to be a tax benefit to leasing in that you could depreciate 100% of the lease expense immediately, just like any other business expense. Unfortunately, the IRS has changed the way they treat automobile leases, and you now have to depreciate them on a schedule like you would any other asset.

Prior to the change in this rule, and assuming that you were able to write off a Ferrari as a business expense, structuring a lease with a $1 residual would mean that nearly the full value of the car would be paid as lease payments. This meant you could depreciate the payments immediately, receiving immediate tax benefit.

I'm not sure what niggler was talking about with the >$250k, but I suspect he's talking about the limits imposed on business deductions. There's a ceiling to the amount of business expenses you can deduct before you have to start using depreciation schedules. IIRC, that ceiling is around $250k, but I'm fuzzy on this one. All I know is that my little consultancy never hit a big enough number that I had to worry about it. I took everything as a straight business expense, including 50% of my lease payment for my car.

Here's where things get shady though. Writing off a Ferrari as a business expense is a high-risk proposition. The IRS has very specific rules about automobile deductions. You have to be able to substantiate the business use of the automobile. If you can't, or if the IRS strongly disagrees with you, they can stick you with the back tax.

If you've got the kind of money laying around that allows you to lease a Ferrari with a $1 residual, then you probably have the money to pay lawyers to fend off IRS auditors too. For your average person, it's not worth the risk, IMO. If you have a justifiable business use for your car, and you're comfortable keeping mileage logs that explain the business purpose, then go for it.

Thank you!

250K is a NY state rule. Other states may have different limits.

I AM NOT A CPA so please please please please please talk with your accountant or tax advisor. Rules are explained in publication 463 "Travel, Entertainment, Gift, and Car Expenses". There's probably a PDF on the IRS site.

From my experience, the people who are able to most easily deduct a car as a business expense are sales people. They will often put 20,000 miles a year on their company car as they travel around their territory and call on customers.

Which makes the 36,000 miles allowed under the Tesla 3 year lease problematic -- they'll have to pay 25¢ a mile for those extra 24,000 miles, or $6,000 at turn-in time. Even if they prepaid those extra miles at a cheaper rate, it'd still negate the advantages of the cheap(er) lease from Tesla.

This isn't a traditional lease, though. If you read the original article about the "new" financing product, you are purchasing the car. This makes you eligible for the tax credit(s).

After three years, you have the option of (a) doing nothing and paying nothing besides your normal payments. After all, you bought the car. (b) selling the car back to Tesla. You are not obligated to sell it, but if you want to, Tesla is obligated to buy it back. If you sell it to them you then pay the penalty.

So this hypothetical salesman need only not sell it to Tesla, or sell it to someone else after the tax credit period (which I believe is amortized over three years or something).