Chrysler Capital - lease & immediate buyout?

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I plan on purchasing a PHEV via leasing the vehicle to fully realize the $7,500 credit through a lease rebate because I cannot claim another $7,500 credit this year due to insufficient tax liability, thus an outright purchase is off the table. I have a great relationship with my dealer sales managers - they aren’t sleezeballs, and have given me fair deals several times (especially in this market when other dealers have told me to pound sand). They are fully supportive of me going this route, and only asked that I wait until after the 1st payment to buyout so they don’t get dinged.

The manager I’m working with on this deal told me the only way this would work to my advantage would be through Ally since the $7,500 is used as a rebate/cash, and they offer a buyout price that disregards unpaid rent for the remainder of the lease. He said US Bank throws the $7,500 into the RV, so it wouldn’t help with a buyout. Chrysler Capital also uses the $7,500 as rebate/cash, but he claims if I did a buyout through CCap, I’d be responsible for the entirety of the remaining 35~ payments, including rent charge, whereas Ally would only make me pay the remaining purchase price, thus saving thousands on interest.

I think he may be mistaken… but this manager has been one of the more intelligent & upfront people I’ve ever worked with (having bought 30+ vehicles), so I want to make sure I’m informed before trying to correct him on this. I’d like to go through Chrysler Capital because of an additional $750 leasing rebate, but certainly not if it means paying thousands in interest/rent on money that is no longer being lent to me. I’m not sure how it’d even be possible to charge remaining rent - how could a bank charge rent for money that is no longer being lent over 36 months when doing an immediate buyout?

He chalked it up to Ally using an interest rate on their leases, and CCap using MF (I have no idea if that’s true since I’ve always done purchases before) - is he wrong about CCap, and if so, how should I explain that to him?

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Your dealer is wrong. Do this through ccap.

Avoid ally and usbank like the plague.

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I spent about an hour going over this today with the dealer - they printed me actual contracts with both banks for me to compare everything. CCap is indeed the better deal. But, the bigger issue is now state taxes. I am getting the same info as when I tried using a lease cash advantage on a Stinger years ago - that Ohio does not credit sales tax from a trade-in to a lease. I’m being told I’d also be hit with sales tax twice - once during on the lease, and again on the buyout. The contracts both printed with hefty sales taxes. CCap at $2,776, and Ally at $3,184 (add about $580 in more taxes from the cap cost reduction). Ally estimated total fees/taxes are $3,895, and CCap are $3,479. My sales tax rate is 6.75%.

Both contracts break down the base monthly payment with sales tax listed as N/A, and instead list large sales tax amounts as included in the gross capitalized costs. The retail lease orders only list sales tax for capital cost reduction. Will this mean taxes are paid up front, or are they collected monthly as part of the payment? I’ve attached both contracts in case I suck at explaining things… If I get destroyed on sales tax and fees, it may not make sense to do this lease since an outright buy would have 0 tax and minimal fees.

As it relates to my state’s handling of taxes, do you think I will be taxed twice and/or receive any credit for my trade-in?
From my state’s tax website:

3 Does a trade-in reduce the price when calculating sales or use tax?
YES, If a motor vehicle is traded for a new motor vehicle, all-purpose vehicle or off-highway motorcycle in a purchase or lease agreement.

16 Does a leasing company charge sales tax on the “sale” of its leased vehicles? If so, how is the tax paid to the State of Ohio?
Early Buyout. For leases entered into after Feb. 1, 2002 where a lessee purchases the leased vehicle before the end of the lease, they are allowed credit for part of the sales tax, if the entire amount of sales tax was collected at the beginning of the lease. Part of the buyout purchase price could contain an amount for which tax has already been paid. The Department of Taxation will allow credit for part of the tax paid up front if the following conditions apply:

The sales contract between the leasing company and the lessee/buyer must list a separate amount that represents the present value of the remaining lease payments that are being paid by the lessee. This amount may not exceed the sum of the remaining lease payments. This is an amount for which tax has already been paid. The remainder of the sales contract would list other fees and charges, such as residual value and early termination fees. These items would be subject to the tax.

To determine the tax to be paid to the Clerk of Courts, calculate the entire tax due on the total purchase price of the vehicle, which includes the remaining lease payments, the residual value and any other fees associated with the purchase. Calculate the tax that was previously paid (at the rate in effect when lease began) on the present value of the remaining lease payments. Subtract the previously paid tax from the total tax. Submit the final tax due, less the allowable discount. A copy of the sales contract showing the separable charges must be submitted. If there is no separate line item that represents the present value of the remaining lease payments, no credit allowance will be given.

I also found another bit of info that may be biting me with regards to the negative equity… but that still doesn’t explain why the value of my trade is not being applied towards the lease taxes?

(D) In the case of a motor vehicle lease, if the lease agreement includes an amount for negative equity or a payoff for a previous loan or lease, that amount is part of the total amount paid by the lessee and is part of the price and subject to sales and use tax.

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Youre paying sales tax upfront on the total lease cost.

More or less, youre paying tax on part of the vehicle cost… basically from yhe purchase price down to the residual value. This is being paid up front.

When you buy out the lease, sales tax will be due on the remaining value of the vehicle plus the buyout fee… so basically, the residual value plus $395.

It looks like your negative equity is not being taxed again here.

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I’ve done some more digging since my last post and mostly came to the same conclusion, but I will be getting taxed on the negative equity. What I found buried in a Ohio tax memo:

Q3) How will trade-ins be handled?
A3) Trade-ins are similar to charges such as down payments or manufacturer rebates in that
they reduce the cost of the leased property on which the lease payments are computed. As a
general rule, items taken in trade on a sale or lease are part of the price. Tax will apply on
trade-in amounts in the same manner as for down payments or manufacturer rebates.
However, under Ohio law, the credit afforded a lessee for a trade-in of a used motor
vehicle on the lease of a new motor vehicle is not included in the taxable price of the
transaction. . If the lessee owes an outstanding balance on the
motor vehicle, watercraft or outboard motor that is traded, and that balance is financed as part
of the lease, the financed amount is part of the price of the lease.

The way I understand this, a sales tax credit would only be applied from a trade-in IF I have positive equity, because the equity would reduce the overall price of the lease, and Ohio allows that credit to be non-taxable when trading a used for new vehicle. In my case with negative equity, it increases the price of the lease, and I am ultimately taxed on the negative equity - freakin’ outrageous considering I already PAID tax on that amount when I bought the vehicle. I believe this was further confirmed as I stood behind the manager and watched him manipulate numbers on his deal configurator. When he removed my negative equity by upping the trade allowance (or reducing the payoff), the taxes decreased.

Q 28) What are the tax consequences when the lease terminates and the lessee purchases
the leased item?
A 28) If the lease expires on its termination date according to its schedule, and the lessee buys
the leased item the price paid by the lessee to the lessor is subject to sales tax.
If the lease is terminated early so that the lessee has to pay a lease termination charge, (the
present value of the remaining lease payments), and the residual price of the leased item, only
the residual price of the item is subject to sales tax. Lease termination charges which represent
the present value of the remaining lease payments are not subject to sales tax.

This section also confirms what you said - tax is only owed on the residual amount if conducting an early buyout as the sales tax on the monthly payments is collected up front. I think this is how it will break down… again important to note the monthly payments include rent charge & my negative equity, which are part of the lease price, and thus taxed.

Cap cost reduction: $8,250 = $557 in taxes
Total monthly payments: $44,223 = $2,985 in taxes
Residual = $29,109 = $1,965 in taxes
Grand total: $5,507 in taxes… almost a complete wash of the $7,500 rebate I was seeking, even moreso after factoring fees. At this rate I may just buy the vehicle to rid myself of the lease trouble. If I miraculously make more money this year/increase my tax liability, or if the tax code changes (like with the child tax credit being made refundable last year), I may still be able to benefit from the $7,500 myself.

Hopefully this info helps someone else in the future.

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Why are you referring to trade-in tax credits? If you are leaving; then buying it out, there is no trade-in involved.

That is incorrect. You pay sales tax on the buyout price, not the RV price. Because IL collects all the sales tax on the lease monthly payment upfront, you are paying more in sales tax with your “strategy” vs just buying it outright from the beginning.

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I am trading my current vehicle in for the lease and was expecting to receive a sales tax credit for the trade’s value. Also, it is not incorrect as I read it. Look at Q 28 again - only the residual is taxed since the lease price is taxed upfront.

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This isnt IL tbough. This is OH which is tax up front on the lease cost.

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Hi all - new to leasehackr but came across this post and have similar questions. I’m helping a friend shop for a 23 Pacfica Hybrid. One dealer is telling me that that current $7500 lease incentive only looks good for those who cannot realize the tax credit, and therefore lease to get the rebate and immediately buyout the lease. I have leased many cars in my life and all payoffs I have seen include all unpaid rental costs (interest and taxes). However, this dealer is telling me that an early buyout is NOT subject to any remaining interest. Is this true? If so, is this will specific banks? If this is allowed, it would seem like a decent deal for my friends.

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FYI this is in California.

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If this is Ally, it’s a pain to buy out.
If Chrysler then Acq and Dispo will need to be paid (Depends on the offers) , but it’s easy

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I have never seen a lease that included unearned rent charges in the buyout.

I have seen lots of people misread the contracts and come to the conclusion that it does, however.

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Acquisition fee is part of the base lease cost. It doesnt get added at buy out.

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Thanks all. So this could work then - the $7500 would come as a cap cost reduction and they can buyout the least almost immediately? And will not incur the added interest? Is this documented anywhere?

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Most lease contracts specify the buyout terms and how the adjusted lease balance is calculated. I’ll look for it on my ccap contract when im back home, but its been posted here before.

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Yep got it, would just want to see if before actually doing this or signing the lease. Otherwise the early buyout does not make sense, and nor does leasing as the MF is standard MF this month - insanely high!

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Yes, I just did this last month in CA with a credit union loan buyout on a December lease. The CCAP payoff is the remaining unpaid net cap cost plus $350 buyout fee.

What’s more, thanks to a heads up from another LH member, I took advantage of the CCAP sign and drive lease deal. CCAP pays your first lease payment in exchange for a small bump up in the MF, which won’t matter because you will be paying off the lease right away. That will add an extra incentive to your deal. It was a bit of a pain for the dealer to figure out how to enter it in their system, but they got help from the Cali CCAP rep to make it work. The $7,500 has to be entered as a cap reduction, and the remaining lease credits can offset the drive offs.

Also, CCAP applies the depreciation payments evenly, instead of using effective interest amortization. So the payoff quote that they give you (which the friendly reps on the phone can quickly send to your account), deducts the average depreciation amount from the remaining lease payoff for each monthly payment that was made.

I also made several large advance payments to my CCAP account (effectively large down payments for my loan), and those were fully credited against my payoff amount. My CU then calculated the sales tax due against my payoff balance.

Hope that helps.

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This is SUPER helpful. Thank you. I will ask the dealer about this today. They mentioned leases are using Atlantis? Is that correct? Is that the parent to Chrysler Capital?

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Is the early buyout specified in the paperwork?

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I also wonder if 36/10 or 48/10 is better or if it does not matter given lease payoff is almost immediate.