How does taxes work if i trade in a lease early? - Florida

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I’ve got some equity in my Durango. Its worth more than the payoff.

But, when I sit down to look at a new Ram 1500, they’ve got a line item in the paper work for $3779. in taxes. Its like I’m having to buy out the Durango (and pay off its taxes on the remaining value) then they’re adding that into the cap cost of the lease. Plus full taxes on each payment of on the new truck. There doesn’t appear to be any credit for the taxes paid at trade in for the new Truck.

This isn’t making much sense to me then. I think its smarter to hold on to the durango for a few more months till the lease is up. I’d just turn it in then and move on? Doing it this way it appears all my positive equity is getting eaten up by taxes to pay off the vehicle I’m not even keeping.

Does this make sense to anyone else or are they doing the math incorrectly? I’m in Florida if that matters.

Autonation dealer? Lots of dealer provide a lease sheet that also has a purchase option on it showing all the fees. This often includes the purchase sales tax. You don’t actually pay it, unless you exercise the purchase option rather than the lease option.

You don’t get a tax credit generally on a trade in on a lease as you’re paying a use tax rather than sales tax on the whole thing. This varies by state, etc, but I believe Florida is the same.

From what I think you’re saying then, I shouldn’t be paying taxes on the ‘lease pay off of my Durango’ . I should just be ‘turning it in’. I gotta pay the ‘lease pay off’ sure… which the value/equity of the vehicle is more than covering. In my head I should have like $1500 back (since i’m not paying taxes on the pay off) thats going towards the new truck (or cash in pocket).

Am I getting this wrong?

Also no not an Autonation dealer. I think this particular Dodge dealer in St. Pete is independent?

So there’s a couple variants of this that people get confused with, so let me try to address what you’re asking by going through all of them.

If you were going to sell your leased vehicle to a private party/3rd party company that can’t purchase directly from your lender, you would need to buy out your lease, pay sales tax on that amount, and then sell it. Some states (CA for example) offer some sort of workarounds here, but don’t count on it. This typically applies to private party transactions and places like carvana/etc with some lenders.

If you owned the vehicle outright and traded it in on a purchase, some states only charge you sales tax on the delta in value between the new vehicle and the trade in. In this case, you’re essentially getting a tax credit from the trade in. This only works if you own in generally. Leases don’t apply here.

If you’re trading in your lease on a new lease and the dealer is buying out your current lease, the transaction is tax exempt. You don’t have to pay the sales tax amount on the buy out of your current lease, but you also don’t get any benefit on the new lease.

If you’re trading in your lease on a new lease and they’re grounding your current lease, there’s no sales tax involved in the current lease, as you’re bringing it to an end.

These are all generalizations and may vary by state, but I believe them to be accurate for your situation in Florida.

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This isn’t actually important, they’re just one of the chains that always seems to list a purchase option on their lease sheets. Others do as well.

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Okay thank you. So this scenario is relevant to what I’m trying to do here.
“If you’re trading in your lease on a new lease and the dealer is buying out your current lease, the transaction is tax exempt. You don’t have to pay the sales tax amount on the buy out of your current lease, but you also don’t get any benefit on the new lease.”

What I’m not clear on is whether they’re grounding the lease. If they do this, basically what is owed is the sum of my remaining payments. If I did this, I suspect I do not benefit from the positive equity I have in the vehicle. So what I think they’re attempting to do is not ‘ground’ the lease, but ‘buy it out’. I gave them my payoff. I think their intention is to pay off the lease and have it as a trade in like anything else. They’ll pay me more than the pay off which is my equity. Now I thought this equity goes into my pocket (or towards new lease) but instead they appear to me attempting to charge me the sales tax on the payoff. Then using my equity to cover this tax. So if I’m hearing you right, they sholdn’t be doing this. Its not taxable to ‘trade in’ the Durango to a Dodge Dealer if I’m leasing a new Ram 1500 in the same transaction?

Its leased through Chrysler Financial as is the new Ram (if any of this is helpful).

Can you post the actual offer sheet?

Its not stated on the sheet but when I spoke to the guy on the phone he says he’s using 0.00116 MF and 53% residual. 595 lease acquisition. No Dealer Fee. 36/12 terms - $1000 at signing.

This sheet is for buying. That’s why you see the tax for the full amount. They have to give you a lease sheet. You will see the tax on the monthly payment instead of full price.

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Not sure what to do about that. I’ve asked for a lease write up. This is what they sent. I can try again?. They know its a lease, thats the mileage and payment handwritten in.

Well it says your DAS is $1000 and pretax monthly is $759. Is your tax rate more than 7%? It should be ~$812 instead of $819.

Put all those numbers in the calculator and see how it looks. (Pre-incentive discount etc)

Tax rate is 6.5%

But yes will pop it in and see what it comes out to.

That definitely looks like a generic purchase sheet that dealer like to put with leases. The sales tax as posted on there wouldn’t be included, but it’s always a good idea to make sure the numbers check out otherwise.

The lease calculator doesn’t allow for anything to do with the trade in. If I leave the trade in out of the numbers I come up with a payment of $764 with tax. IF I add $3779 back into the cap cost just to see what the payment would look like I’m up to $881. So something isn’t right here. I don’t mind calling them to ask them to redo the numbers but I wanna make sure that I’m not harassing them IF they’re correct in charging me tax on my trade in.

Looking at this again:

  1. The MSRP is 71,500.
  2. I’m getting a $8939 discount on the truck
  3. Plus another $2500 in incentives.
    Total sales price is: $60,061.

They’re giving me $30,000 for my Durango. I owe $28,599 on it. Taxes aside for a sec, thats a difference of $1401 in Positive Equity. I wouldn’t ‘want’ to put this down, but assuming I did for a sec, wouldn’t I just add this amount to my ‘down payment’ number in the calculator?

There is no dealer fee, I do have the acquisition fee of 595, 53% residual, and 0.00116 MF.

IF I pop all this into the calculator I get $721 WITH taxes.

The only reason this is wrong, I think, is if I gotta pay taxes on the pay off amount of my Durango. The pay off is $28599 again. So, 6.5% on this amount. This the key to my question. Its essentially adding $1,858 to my costs. If i took this out of my down payment, The lease payment ends up at $778 w/tax. So how they’re getting to $819 makes no sense to me.

Help! :slight_smile:

This is pretty much unheard of

This is only due to the fact that I have a Preferred Partner discount. Otherwise I’d be subject to the dealer’s dealer fee.

I know this is an ancient thread, but what if you were trading in a lease, and the new vehicle is a purchase, rather than a lease. Would there be a tax benefit on the new purchase?

Generally no. there may be a state or two where that isnt the case.

So there’s a couple variants of this that people get confused with, so let me try to address what you’re asking by going through all of them.

If you were going to sell your leased vehicle to a private party/3rd party company that can’t purchase directly from your lender, you would need to buy out your lease, pay sales tax on that amount, and then sell it. Some states (CA for example) offer some sort of workarounds here, but don’t count on it. This typically applies to private party transactions and places like carvana/etc with some lenders.

If you owned the vehicle outright and traded it in on a purchase, some states only charge you sales tax on the delta in value between the new vehicle and the trade in. In this case, you’re essentially getting a tax credit from the trade in. This only works if you own in generally. Leases don’t apply here.

If you’re trading in your lease on a new lease and the dealer is buying out your current lease, the transaction is tax exempt. You don’t have to pay the sales tax amount on the buy out of your current lease, but you also don’t get any benefit on the new lease.

If you’re trading in your lease on a new lease and they’re grounding your current lease, there’s no sales tax involved in the current lease, as you’re bringing it to an end.

These are all generalizations and may vary by state, but I believe them to be accurate for your situation in Florida.

I am doing something like this and a little confused. I’m in Florida.

Dealer is purchasing my lease and there is some equity, but I am not leasing again I am financing. Is there any tax benefit from the dealer purchasing the lease in this scenario? How would that look on the worksheet for a purchase/finance?