I will be leasing a car in CT with a total lease cost of 17,773. I am trading in a car that will add a trade allowance of 9,800. There is a loan on the trade and it’s pretty much even to pay off so there is no +- equity.
For the trade in tax credit is it correct to say that 17,773 will be reduced by 9,800 so instead of paying a total sales tax of 1,128 it would be 506.29? Not including any tax on DP or rebate.
No, AFAIK Connecticut is like a lot of states in that the monthly payment amount is what is taxed. So trading in a car with zero equity will have no effect on your taxes.
This is from the CT.gov website:
“If your vehicle was purchased from a licensed dealership, the 6.35% (or 7.75% for vehicles over $50,000) sales and use tax is based on the purchase price. We allow full trade-in credit when computing the Connecticut Sales and Use tax if the vehicle was purchased from a licensed dealership.”
Not sure how that applies to a leased vehicle however.
Purchase != leased
It does apply in some way to a lease as long as you are trading in a car that is owned. 3 dealers have said this one of which I definitely trust. I just like to know how to calculate stuff like this myself so I don’t get duped.
Do you have a deal sheet? There’s no way to have a “trade-in allowance of $9,800” if it’s break-even. Also, CT taxes you on the monthly. There’s nothing for a trade, unless you use equity to reduce the cap cost.
It does not apply to leases, only purchases.
I don’t believe it matters. According to CT Gov …
Leases of Motor Vehicles: After consultation and discussion with the Connecticut Automotive Retailers Association, the “agreed upon value” as it appears in lease agreements will dictate the applicable sales tax rate. To the extent that the “agreed upon value” exceeds $50,000, lease payments due and owing on or after July 1, 2011, will be subject to tax at the rate of 7%.
It is Department of Revenue Service’s understanding that the agreed upon value” as it appears in lease agreements includes taxable items such as acquisition fees, transportation fees, origination fees, as well as any optional charges, all of which would be taken into account in determining the sales price (and appropriate tax rate) of the vehicle if it were being sold.
The tax rate to be applied to the lease payments is determined based upon the “agreed upon value” as it appears in lease agreements regardless of whether the vehicle was purchased by the lessor as a new or used vehicle or whether it was purchased and used outside of Connecticut prior to relocating into Connecticut.
The “agreed upon value” of a motor vehicle as it appears in lease agreements has no bearing on the applicable tax rate if said vehicle is sold at the conclusion of its lease. The applicable rate will be based upon the sales price of the vehicle at the conclusion of its lease."
COMMENTARY
WHOA CT Dept of Revenue. The Agreed Upon Value is the sell price and EXCLUDES both taxable and non-taxable fees. If capitalized, those fees are ADDED to the agreed upon value to arrive at the gross capitalized cost. Federal Reg. M - Consumer Leasing (12 CFR Part 213) defines Gross cap as…
Alternatively…
It doesn’t appear to me that the agreed upon value is adjusted for trade-ins. But who knows… Seems to me that the CT Dept. of Revenue needs to get a better grasp of leasing terminology.
So the way the ct trade in tax incentive was always explained to me is when you trade in a car, you only pay tax on the new car for the amount greater than your trade in number. It is most definitely not just the sale price minus the positive equity of trade. In this scenario the 9800 is not coming off the total cap cost because it’s being wiped out by the payoff. It’s very easy to understand when trading in towards a purchase but not so easy when trading in towards a lease. The question is not whether or not there is any tax deduction. I know there is SOME tax reduction I was just hoping someone could explain how to calculate that tax reduction.
The only authority is the CT Tax Code.
There is no tax reduction in the way you’re thinking. As I mentioned, CT taxes you on your monthly payment, which is net of depreciation, interest, incentives, fees, etc.
Example: Total depreciation is $40,000, including interest and fees. Split that into 36 months, and your payment is $1,111 plus tax.
If you have a trade worth $9,800 and the payoff is $9,800, it does not reduce the depreciation.
If you have a trade worth $20,000 and the payoff is $9,800 AND you choose to apply the equity to the the depreciation, then your depreciation is only $29,800. Your payment would then be $827.78, and you pay tax on that each month.
That’s the very simple explanation.
Ok get this dealer to generate two deal sheets on the same exact car. Everything being equal except one includes the trade and one doesn’t.
Ok I just figured it out. It’s pretty much what I thought and I was able to confirm it by using my lease deal from a couple of months ago where I also traded in a car with $100 negative equity. I don’t know why I didn’t think of that in the first place.
Trading in an owned vehicle towards a leased car in CT will give you a tax credit. Only the total dollar amount the dealer is paying for your trade matters. Doesn’t matter if there is negative equity. This is not debatable.
In order to calculate your lease sales tax, take the total cost of your lease over the term (depreciation + rent charge) and multiply it by state sales tax. In this case 6.35%. Divide that by months of the term to see how much tax you are paying monthly (unless you are paying it up front). This would be your sales tax without any trade in involved.
Now take the total cost of your lease and subtract the dollar amount of your trade. Multiply that number by state sales tax and divide by 36. That is your monthly sales tax as part of your lease payment.
The difference between the two tax calculations would be your tax credit savings.
Here is an example:
Term: 36 months
Total Lease Cost: 17000
Sales Tax: 6.35% - 1,079.50
Monthly Sales Tax: 29.98
Trade Price: 9800
Least Cost Minus Trade: 7,200
Sales Tax: 6.35% - 457.20
Monthly Sales Tax: 12.70
Savings: 622.30 or 17.28 monthly
Notes:
What if you’re trading a leased vehicle… how is that treated from a tax standpoint?
CT Dept. of Revenue seems to suggest otherwise.
My experiences in NJ with trading in (owned vehicle) towards a lease have varied by dealership. Given this is something of a grey area, if the dealership won’t account for a lease tax credit, I just move on. Even amongst the same brand I’ve seen dealer’s accounting vary. Would not be surprised to see mixed results in CT.
That is 14 years old. It clearly states that there must be a trade-in allowance, i.e. a reduction of the total cap cost, and then you’re still taxed on the resulting monthly.
Just thought it became effective July 2011 and surmised it hadn’t been changed since which, I thought, was unusual. Thanks for the update!
What you save-ith in taxes, Connecticut take-ith away with property taxes. LOL. I love leasing and owning vehicles in this great state.
Technically there is no such thing as trading in a lease. You are either returning your lease or you are buying it and then selling it. Once you buy it out you now own the car and it would be treated like a normal trade in hence you would receive a tax credit.
Or a dealer is buying out the lease for you and then either applying negative or positive equity to the new car / cutting you a check. I’ve heard some dealers mention giving a tax credit in this situation but to me that wouldn’t make sense since you never owned the car.
