Buckeye3d

From what I understand you can do a early lease buyout and trade-in for a new car. I've read our lease agreement and it says we can do it. What its not clear on is taxes. When I call the bank who the lease is with the buyout price it gives us includes sales tax. What I'm wondering is if you do a early buyout and then trade it in what happens with sales tax? I assume you wouldn't have to pay sales tax but the agreement isn't very clear. I'm not looking for advice if an early buyout and trade-in is a good idea (in this particular case I believe I can break even)...just curious how it works exactly.

SC-ed

You pay sales tax no matter what you do.

Buckeye3d

You pay sales tax on the trade-in and then pay sales tax again on the purchase? Or do you mean you just pay sales tax on the purchase price of the new car minus the trade-in value?

TownDrunk

When you lease a car you pay the sales tax for each month's "rent." It's my understanding that if you buy out the lease, you still owe the sales tax on the out standing amount. Think of it this way... When you purchase a car you pay sales tax on the entire amount of the purchase price. If you finance, the tax is included in the principle. The lease works the same way. So, you're paying sales tax on the out-standing "rent" on a lease buy out, as well as sales tax on the residual value if the car is not surrendered (like if you purchased it out right from the leasing company).

I'm not 100%, but I'm pretty sure that's how that whole thing works.

Buckeye3d

I understand if I buy the lease out I owe sales tax. What I want to know is if I trade it in for another car do I owe the sales tax. If you trade it in you are not buying it out...the dealership is.

Buckeye3d

Well decided to call the leasing company to be totally sure about this. If you trade a lease in there is no sales tax on the lease. You / the dealer simply pays the purchase price / buyout price. If you buy the car yourself you pay the sales tax.

balefire

iTrader: (2)

When I bought out my lease on one of my other cars, I paid the sales tax when I got my license plates. Since the dealer doesn't get license plates, they don't pay sales tax. You don't pay sales tax to the leasing company.

Hyperborea

So, how does this work? Can you use your leased RX-8 as a trade-in on another vehicle by having the dealer that you are buying from purchase out the RX-8 at your residual value?

So, if you had an RX-8 that was worth, for the sake of discussion, $18K and you owed $16K could you use that $2K towards the purchase of another car?

Buckeye3d

Yes. You have the general idea. The company you are leasing from can provide you or the dealer with the buyout / trade-in dollar amount. If the dealer offers you more than the buyout amount then you could use that money towards a new car. This type of situation is not going to happen usually though. If the buyout value is higher than the offered trade-in (the norm) you'd have negative equity to roll into your new car loan.

Hyperborea

As I look at the online sites I'm seeing trade-in values anywhere from $1500 (NADA) to $3000 (Edmunds) over what my lease end purchase cost would be. Part of that is my low miles (13K) and the other is the excellent condition of the car (Mazda lease end inspector has told me that the only cars he sees as clean as mine are Porsches and Corvettes). How reliable are those values? I've never traded-in a car before so I don't have any first hand experience with this (I've only owned a small number of cars over my years and they've all gone other ways).


Well, in that case I would just turn it back in to Mazda then. I'm actually coming up to the end of the lease and have the option to buy it out or turn it in and I'm thinking about not keeping the RX-8 but if my buy-out price is less than trade-in value I want to use that difference to my advantage.

How do dealers handle buying out your lease car as a trade-in?

Thanks.

Buckeye3d

My experience is that dealers will make every attempt to screw you on trade-in values. It can be very tough to get KBB trade-in values at a dealer. Dealers handle buying out your lease just like they would paying off a loan you have on a car that you trade in. They simply pay off the lease or loan balance and apply the equity to your new purchase or roll the negative equity into your new loan.

MazdaRich

I'm trying to figure this one out myself. If I trade-in the car for the residual value of 15,500 and buy another car for 20,500... would I have to pay sales tax only on the $5000? Or would I have to pay sales tax on the entire amount of the new car? If I only have to pay sales tax on the difference, then I would be a lot more motivated to sell the car to a dealer, rather than sell it myself.

Buckeye3d

In Ohio you'd only pay sales tax on the difference. It can vary state by state as far as I know.