Hello. I have 2 more months on my lease and it seems I have positive equity at this time. My pay-off amount is less than kbb's trade-in value in good contition. I'm from IL and want to trade my leased vehicle at a dealership for a purchase of a new car. I hear I can save in some sort of tax credit if I buy a new car with a trade in... Is my best option to trade-in the lease and save on some tax credit, or do I need to buy the car myself and then trade it in? Thanks for your help. My lease is through Toyota.
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- medic78
- Shopaholic Member
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posted: Feb. 23, 2008 @ 8:16a 
Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.
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- bNeta86
- Senior Member
not 100% sure what you mean.
I know you dont pay sales tax on the value of the car you're trading...not sure how that works though since you dont actually own it and are just leasing it. You might have to buy the car at the end of the lease and then trade it - ask the dealership they should know.
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- u2head8
- Senior Member - 1K
medic78 said:Hello. I have 2 more months on my lease and it seems I have positive equity at this time. My pay-off amount is less than kbb's trade-in value in good contition. I'm from IL and want to trade my leased vehicle at a dealership for a purchase of a new car. I hear I can save in some sort of tax credit if I buy a new car with a trade in... Is my best option to trade-in the lease and save on some tax credit, or do I need to buy the car myself and then trade it in? Thanks for your help. My lease is through Toyota.
KBB doesn't mean much at trade in especially for big SUVs and Van. You need to take to the dealer to get the exact number.
I believe you only pay tax on the depreciation portion when you lease a car. So, if you want to get tax credit when you trade in, you need to purchase the car first and then trade it in.
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- dcwilbur
- Ancient Member
Some states charge sales tax on the amount of the sale before the trade-in is applied, and some states charge sales tax on the amount of the sale after the trade-in is applied. I'm guessing that's what the OP is getting at.
In the unlikely event that he really does have "positive equity" (as opposed to the other kind of equity? 
), he would have to buy the leased vehicle, pay the sales tax on it, and then trade it in. It ain't gonna work.
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- delzy
- Senior Member - 1K
I don't think the car is your's to trade. I think you will either have to buy it out at the end if you've got so much equity in it (which I highly doubt), or you will have to pay early termination penalties. But don't worry, I'm sure the dealer will just roll all those charges into your new note.
Message edited by: delzy on 2008-02-25 10:35:33 CST-
- honghong322
- Thrifty Member
since you're ona lease... the car isn't yours. If you want to, the dealer will make it all work out. How can you trade in something you're "renting" for something you want to buy?
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- ClaimsGuy
- Senior Member
There has been fuzzy math aroung for so long, people are now used to it.
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- ceobeaver
- Senior Member
If you are trading it in to the dealership you originally leased from they would LOVE to take your "trade in". Expect them to include the two lease payments and other fees in the purchase price of the new vehicle. They'll dress it up like they are making the last two payments for you, but don't be fooled. The payments are yours and they'll stay that way.
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- michal1980
- Senior Member - 3K
theres alot of smart comments to be made about op.
but if the spread between the true value of the car right now on the market, and the pay off amount is big enough, it might be worth buying it. It happens at times with leases were the depriciation was caculted to much. ie car assumed to lose 50% value over 3 years, but it really lost 30-40%.
But the goal would be to resell the car right away. Theres probably no case where buying it, and trading it in will net you any savings.
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- fuzinav
- Member
It may be too late to add my comments, but our experience was the lease company allowed us to negotiate a sale of the leased vehicle [actually back to the original dealer] without us ever having to purchase the car so no titling fees or tax. The lease company then cut us a check for the difference. Good deal for us because we could take the cash and negotiate for a different car and a good deal for our lease company since they were not stuck with a car to sell. Your lease company may allow you to do a similar deal if that would help you with the state tax .
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- soonerfanjames
- New Member
i just went thru this same situation. I live in texas where the sales tax on vehicles is 6.25%... If you trade in a 15k car and buy a car @ 20k- you only owe sales tax on the price difference (10K). On a lease trade in the tax rule (law) is fuzzy. Some dealers will charge you the full tax on a new car lease/purchase when you trade in a leased car with positive equity and some will not. Do not depend on the sales rep -ASk a manager of finance department you are purchasing the car from. Tell them the specific situation ( trade in of a lease car). Some would say they are buying the car from the lease company not you, so you have to pay full sales tax.. I really dont understand what the difference would be if you owed 10k to a bank or a lease company for a car.. In my case, the Lexus sales rep did not know the dealers policy of lease trade-ins with positive equity and the deal almost died at the end when the finance dept saidd they had to charge sales tax on the full car price ( it was a 1400 difference). Most dealers said they did not give tax credits for lease trade-ins.
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- soonerfanjames
- New Member
BTW- if you buy the car from Toyota-you most likely will have to pay sales tax on the residual value if you are buying the car yourself.. You need to call and ask Toyota. We ended up selling our leased car to car max. We didnt buy a car from Car Max, but they said they would give the "tax break" with lease trade in cars.
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- woowoo2
- Senior Member - 5K
soonerfanjames said: If you trade in a 15k car and buy a car @ 20k- you only owe sales tax on the price difference (10K).
Yep, Fuzzy math....
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- michal1980
- Senior Member - 3K
woowoo2 said:soonerfanjames said: If you trade in a 15k car and buy a car @ 20k- you only owe sales tax on the price difference (10K).
Yep, Fuzzy math....
actually I wouldn't put it past a dealer to do fuzzy math like that to pocket the 'tax' on the extra 5k.
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