Stan Bushart works as a customer representative for a large corporation. Stan€™s job entails traveling to meet with customers, and he uses his personal car 100% for business use. In 2017, Stan must decide whether to buy or lease a new car. After bargaining with several car dealers, Stan has agreed to a price of $30,000. If he buys the car, he will borrow the entire $30,000 at an annual interest rate of 8%, and his payments will be $608.29 per month over 60 months. Annual principal and interest payments are:

If he leases the car, his lease payment will be $450 per month for 60 months. At the end of the lease, he has the option of purchasing the car for $10,000. For simplicity, assume an average lease inclusion amount of $230 per year rather than actual amounts. Stan€™s marginal tax rate is 28% in each of the five years. Using present value analysis with an 8% discount rate, is Stan better off leasing or buying the car?

If Stan purchases the car, he will not claim Sec. 179 expensing or bonus depreciation. He will sell the car for $10,000 at the end of five years. If he leases the car, assume he merely turns the car in at the end of the lease.

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Total $ 7,299 Principal $ 5,083 5,505 5,962 6,457 Interest 2017 $2,216 1,794 1,337 843 305 2019 7,299 2020 7,299 2021 Totals: 6,993 $30,000 $36,495 $6,495