My buyout on a 2018 Grand Cherokee is $25k. Carvana and Vroom offering $30k. Lease is with US Bank. Just made last lease payment.
I’m looking to lease an Atlas Cross Sport but VW dealers see no equity in the Jeep. I know their buyout price is higher than mine but I figured there would still be something there. They won’t budge. Tried multiple dealers.
My question is: How do I not leave $5k on the table? I considered buying the Jeep then selling to Carvana, but sales tax will eat a bunch of the equity. But if Carvana buys it directly, I believe I’m going to run into same problem as with VW – their buyout price will be much higher.
Any thoughts on how to capitalize on the fact that I barely drove the Jeep and the used car market is bananas right now?
If you’re in a lease that doesn’t allow buy out at your price and you have to pay sales tax on m your buy out, then you don’t have $5k equity in this. Its a made up, irrelevant number if there’s no path to accessing it.
So instead look at your buyout after tax, and realize that delta is the actual potential equity here. If you want to capture, buy out the car and resell.
Recapturing some of your money spent on the lease isn’t a profit, so unless you wrote off the lease as part of a business and were recapturing that, what gain would you be paying capital gains on?
Sure, capital gains may apply if you net a profit.
That really would only seem to apply though if your positive equity exceeded your net lease costs though, not just the payoff. Highly unlikely for that to be the case on a lease near expiration.
If you’re buying out a lease, capital gains may apply on the delta between the purchase price and sale price. If you purchased & financed from the start your purchase price would be the original price, but since the lease is a ‘use charge’ and you only take ‘ownership’ upon lease buy out, you’re in a position where you actually are buying and selling for more.
I’m not an accountant, so OP would need to consult one.
It seems worst case scenario you’re still better off buying out the Jeep. And at this point it seems it’s either that or just turn it in lose the equity and pay disposition.
Agreed that one should verify with a cpa if they’re concerned. My understanding after looking into this is that a lease with a below market value purchase option determined by your lease payments, at least in some states, is what makes this not just a “basis is established at the buy out” circumstance, but one should definitely doing their own due diligence.
Yes my logic was with US Bank OP would have to buyout and take possession of Asset for $30k. Then he would be doing a separate transaction to sell for $35k. Hence the $5k in capital gains.
Here is Carvana’s explanation. Leases are sort of a tough question if say, a BMW dealerships buys out your BMW lease at end of term for more than RV amount. But in this case where you buy car for 30k and immediately sell for 35k, it does seem like cap gains tax would apply.
So just to reference a law talking adjacent to this subject, here is what Texas says (only using Texas because the law was linked here a few days ago so that it’s handy)
" If, at the termination of a lease, a motor vehicle is sold by the lessor to the lessee and the lease contained an “option to purchase” at less than fair market value or a “must purchase” clause or if the vehicle is sold to the lessee at less than fair market value, the amount subject to the motor vehicle sales and use tax will be the total consideration paid the lessor by the lessee under the agreement, since the agreement will be considered a sale rather than a lease agreement"
That would imply that the basis of the sale starts with the origination of the lease rather than the buy out of the lease since it’s a below market value purchase as a result of the lease equity.
Thanks everyone. I think what I’m going to do is see tell VW I’m going to sell the Jeep to Carvana and let them profit off it, unless VW wants to give me a few thousand in trade for it. Still doubt they’ll budge but maybe seeing the hard Carvana offer will persuade them to roll in some equity. If not, I’ll just buy it and sell it.
