Car depreciation is limited by luxury car limits.

If the vehicle cost is over $16,000 and there is some business use, there are typically tax advantages to leasing.

If a vehicle owner trades in a car that has been subject to the depreciation limits they will not be able to “cure” this situation unless they sell the vehicle.  If the vehicle is traded in , depreciation must continue under its original schedule, which means that it might take several years to fully recover.
 

The IRS considers a car for a car or a truck for a truck a like-kind exchange.  A car for a truck is not a like-kind exchange.  An SUV is considered to be a car for like-kind exchange purposes.  A non-compliant trade-in is considered a sale.

For purposes of the Section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time.  For example if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the Section 179 deduction does not include your adjusted basis in the car you trade in for the new car.  Your cost includes only the cash you paid.

It rarely makes sense to take a Section 179 expense for an automobile.  Since Section 179 expenses are included in the depreciation limitations, in most cases it will not increase total deprecation, but will count against your Section 179 limitations.  List of Qualifying Vehicles

Unreimbursed employee automobile expenses are subject to the 2% AGI limit.

In almost all cases actual expenses will be greater than the 2005 40.5/48.5 cent government reimbursement.

Auto leasing does not affect your ratios, such as your Quick Ratio.

When you lease a car you only pay sales tax on the part of the car you use.  When you purchase a car you pay sales tax on the entire vehicle.

A lease may permit the lessee to avoid conflict with a loan agreement that limits the amount of additional borrowings.

Section 179 Expense limits, adjusted for inflation for 2005 is now $105,000.  SUVs are limited to $25,000.