Mahalo to you as well!! Hope that this reply to your follow-up question finds you well!
In answer to your follow-up question - about the car being hit while parked (and that the lease-related fees that you incurred were due to the inspection, and in the inspector assessing these fees based on damage to the car from being hit while parked) . . . . the short answer is . . . "it depends!"
You will need to ask yourself a few questions, as you are answering the TurboTax Live! Interview Questions concerning the self-employed business expenses for the leased vehicle.
A check of our TurboTax Live! resources - yielded the following:
Keep good records
The IRS is very fussy about writing off the cost of vehicles, so if you plan to take a vehicle deduction, keep a detailed log of your business miles and other expenses if you want to write them off, too.
We had the same opinion . . . but is always good to confirm this in our TurboTax Live! resources . . . which suggest the following:
As a leased vehicle is not depreciated (like a normal garden-variety capital lease . . . which is amortized and otherwise expensed over a period of years), the business portion of the lease - is what is the deductible expense for your tax return filings.
While you can use either the standard federal mileage rate (which is $0.56 per mile for the 2021 tax year) or the actual expenses method for a leased vehicle, we do not know from your question . . . what you have taken with regard to this leased vehicle for previous tax years (prior to the 2021 tax year), or if you even had the leased vehicle in service for the previous tax return filings.
However, if you have used the standard federal mileage rate in your previous tax years, you cannot - all of the sudden - switch to the actual expense method in a later year. So - what you can do with these lease-related fees, following the inspection, in large part depends on what method you used for this leased vehicle during the 2020 tax year, and in the tax return filings for that tax year:
- If you use the standard federal mileage rate for a leased vehicle, the lease payment amount is not deductible. Therefore, in turn, this may affect the fees that you incurred following the inspection.
- If you use the actual expenses method, and as leased vehicles are not depreciated. If you used the business portion of the lease payment, then this may be what you deducted.
Annual income inclusion amount
When the value of the leased vehicle is above a certain amount, you must also subtract an "income inclusion" amount from the deductible amount of your lease. This income inclusion rule is an attempt to equalize the tax benefits from leasing and owning business vehicles.
- For vehicles first leased in 2021, the threshold is $51,000.
- Income inclusion amounts vary depending on the lease amount and the number of tax years during which the leased vehicle was in use for business.
- The income inclusion amount increases each tax year for five years.
- The IRS releases income inclusion amounts each year for vehicles leased and put into use in that year.
- IRS Revenue Procedure 2021-31 includes the 2020 table of income inclusion amounts.
We trust and hope that this response is satisfactory to your follow-up post concerning the leased vehicle.
If you have additional questions or concerns, please consider scheduling a call back or Chat session with one of our Live! Tax Experts, so that we can address your concerns.
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