I've read a lot of mythology and outright wrong information on leasing on this forum (and Tesla's too), so I've been meaning to write something like this for a while. I've leased my cars for years, and you'll see why shortly. Here's the essence of car leasing:
The basics: leasing is no more complicated than thinking of it as a means of financing the depreciation on a car, which is defined as the difference between the capitalized cost and the residual value at lease end. All tax credits are taken by the lessor, and effectively reduce your CapCost. You maintain the vehicle, and assuming good care and normal wear and tear, have no liability for the value of the car at the end of the lease; the lessor has made the residual value bet at the beginning, and wins or loses accordingly. The interest rate you pay on an auto lease is called the money factor; to convert the MF to an APR, multiply by 2400.
Current lease terms: per an email to me from the finance team at Tesla on June 17, the present MF is .0018, for an APR of 4.32%, The residuals on a Model S are 61%-63%, depending on the mileage permitted under the lease.
Own or Lease? This is where there is a lot of myth. Here are the facts: on a pretax basis, leasing is always more expensive than owning because you have no equity value in the car under a lease, whereas you do if you own the car, all other things being equal. The differences arise if you intend to write off some portion of the car for tax purposes.
It's essential to understand that there are significant limits to the available depreciation of a luxury car that you own. Under the Internal Revenue Code, that limit is ~$18K over 3 years, and it doesn't matter whether you bought a $50K car or a $400K car; it's the same. By contrast, there is no practical limit to the amount of lease payments you may deduct, unless you've got a pretty unusual tax situation. However, YMMV.
After-tax cost. Operating costs on the car are the same whether you own or lease, so you can ignore those. What remains is the amount of depreciation you can take or lease payments you can deduct. Over 36 months the lease payments on a MS will amount to nearly $50K, but the depreciation on the same car will be $18K. At a 45% marginal tax bracket, that's an aftertax difference of $14K.
If you are employed, meaning you get a W-2, you're basically out of luck. Why? You can't deduct commuting costs, and whatever mileage you incur on behalf of your employer must be reported on Form 2106, Unreimbursed Employee Business Expenses. There is a low limit to this, and is subject to an AGI minimum hurdle.
If you are self-employed and use your car for business, leasing is almost always cheaper than owning on an aftertax basis. You add up all your costs of operating the car, including depreciation or lease payments, as the case may be, and multiply that sum by the percentage of total mileage that was for business use. You are then entitled to the greater of that amount or $0.54 a mile, which is the present IRS flat rate (it will be more than $0.54/mi, trust me).
Since this stuff is ripe for an IRS audit, you'd better keep contemporaneous records documenting every business use of your Tesla. I use an iPhone app to do this, but paper logbook is fine. Making statements like "100% of my use is for business" or "I'm going to write off 80% of my car" is asking for trouble. First, the burden of proof is on you and the records you kept (or didn't). Second, envision yourself meeting with the IRS auditor, who drives a used Camry, while you try to justify your expensing of a $100K Tesla. "Absolutely, sir, 100% of my driving is for business; I never drive it for pleasure." Sure.
I drive a lot for business, and have found that over the years it averages 65-75% of my total mileage. I think it'd be hard to legitimately claim more, but, YMMV.
So, what does it take to make leasing cheaper than owning? 1) be self employed; 2) have a high enough marginal tax bracket, say above 35%; 3) drive enough for business, say above 45%. It's a simple analysis, and I run the numbers each time I get a new car. For the $103K Model S 90D I just ordered, leasing was more expensive on a pretax basis but much cheaper on an aftertax basis (and we live in an aftertax world). For every lease going back 15 years that has been the case. Plus, I get a new car every 3 years.
