Key Takeaways

• The IRS lease inclusion rule slightly reduces deductions for certain leased business vehicles.
• The adjustment exists to keep the tax treatment of leasing and purchasing vehicles relatively consistent.
• The lease inclusion amount depends on the vehicle’s value, lease year, and IRS inclusion tables.
• As with purchased vehicles, deductions depend on the percentage of business use.
• Dentists deciding whether to lease or buy a vehicle should consider tax rules alongside cash flow and long-term planning.

When dental practice owners evaluate vehicle options for their business, the conversation often turns to whether it’s better to buy or lease. If you’re weighing your options, it’s also important to understand the depreciation limits that apply when a dental practice buys a vehicle. We explain those rules in detail in our related article, Buying a Business Vehicle? 2026 Depreciation Limits Dentists Should Know.

From a cash flow perspective, leasing can feel simpler. Monthly payments are predictable, and there is often less upfront cost compared to purchasing a vehicle outright.

But from a tax perspective, leasing has its own rules, including something called the lease inclusion amount.

Understanding how this works can help dentists make better decisions about how vehicles fit into their overall tax planning.

Why the IRS Created the Lease Inclusion Rule

Passenger vehicles used in business are subject to depreciation limits under Internal Revenue Code Section 280F. These limits restrict how quickly businesses can deduct the cost of a purchased vehicle.

Without additional rules, leasing could become a workaround. A business could lease a high-value vehicle and deduct the full lease payment each year instead of being subject to depreciation caps.

To prevent that imbalance, the IRS created the lease inclusion rule. The rule requires businesses leasing certain passenger vehicles to add a small amount back into income each year, which slightly reduces the total deduction related to the lease.

This adjustment helps keep the tax treatment of leasing and purchasing vehicles relatively consistent. (IRS Revenue Procedure 2026-15; Internal Revenue Code §280F)

How the Lease Inclusion Amount Works

The lease inclusion amount is determined using IRS tables that are updated annually.

The calculation is based on three main factors:

• The fair market value of the vehicle when the lease begins
• The year of the lease
• The IRS inclusion table for that calendar year

Revenue Procedure 2026-15 includes updated tables for vehicles first leased in calendar year 2026. The tables list ranges of vehicle values and assign a small dollar amount that must be included in income each year of the lease.

This amount increases gradually during the lease term. In practice, the adjustment usually represents a relatively small reduction in the overall lease deduction.

Business Use Still Determines the Deduction

As with purchased vehicles, the amount a dental practice can deduct depends on how much the vehicle is used for business purposes.

If a vehicle is used partly for personal travel and partly for practice-related activities, the deduction must be allocated based on the business-use percentage. The same percentage applies to the lease inclusion amount.

For example, if a vehicle is used 80% for business, only 80% of the lease payments are deductible, and only 80% of the lease inclusion adjustment would apply.

The IRS requires adequate records to support business use, such as mileage logs or similar documentation. (IRS Publication 463, Travel, Gift, and Car Expenses)

When Leasing Might Still Make Sense

Despite the lease inclusion rule, leasing can still make sense for some dentists.

Common situations include:

• Dentists who prefer lower upfront costs and predictable payments
• Practice owners who replace vehicles frequently
• Owners who want to avoid long-term asset ownership

The tax treatment alone rarely determines whether leasing or purchasing is the better choice. Cash flow, business use, and long-term financial planning all play a role.

Planning Before Signing the Lease Matters

Because the lease inclusion rule depends on the vehicle’s value and the lease start date, it’s helpful to evaluate the tax impact before finalizing a lease agreement.

For dental practice owners, vehicle decisions often intersect with broader planning issues such as:

• Practice structure and entity selection
• Overall tax strategy
• Business-use documentation
• Long-term financial planning

Reviewing the numbers ahead of time can help ensure the vehicle decision supports both operational and tax goals.

Leasing a vehicle through your dental practice can still provide meaningful deductions, but it comes with its own tax rules. The IRS lease inclusion adjustment exists to keep the tax treatment of leased and purchased vehicles relatively balanced.

For dentists deciding between leasing and buying, understanding both sets of rules for depreciation limits and lease inclusion adjustments can make it easier to choose the option that best fits the practice’s financial strategy.