Lease Payoff Converted to Financing and Sale... Am I good on Taxes?


So, last week I started a sale to Vroom of my leased Audi, but cancelled it when I saw the payoff amount through Audi Financial was about $7,500 higher than the payoff for me directly. So I got a loan and paid off the lease on Friday. Vroom just updated the contract and said I’m still good to go but my question is whether I still have California tax liability?? I’ve seen others say that you have to get title transferred within 10 days if I buy out the lease, but in this case the bank is holding the title as the lienholder so I assume I’m off the hook. Is that right or did I miss something? Appreciate any help you guys can offer.

You took on tax liability as soon as you purchased the vehicle. There is a process for getting around that, but it’s not that simple.

Some people have had success by buying out the vehicle and then transferring the title before registering it, however, by financing it instead of paying cash, the title won’t come to you.

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I figured that was probably the case, but everything I could find talked about paying taxes to DMV when I received the Title. So assuming now DMV will be sending me a tax bill (in this case at least the official “sales price” from Audi was discounted by $3,000 from my original payoff amount). All in all it looks like I’ll owe about $2,400 in taxes out of the $5,700 I cleared through the payoff so still a good overall net :slightly_smiling_face:

Actually doing some more reading and since the title was electronically transferred on Friday, and I’m signing a contract with Vroom tomorrow, thinking I should be exempt from sales tax under CA’s 10 day rule.

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Timeline wise you may be, but if memory serves, there’s some documentation and such that needs to be sorted with CDFTA. It isn’t as simple as just reselling within 10 days.

Good point, I’ll have to pull up that form online. At least Audi financial didn’t collect sales tax on the payoff so I won’t have to ask for a refund. Assuming I can just file the exemption paperwork once the Vroom transaction is completed.

I thought Audi financial has a line in the payoff quote on taxes for the residual value. Your remaining payments include tax for every month. What other taxes do you owe?

I forgot about that. The only thing is though that the tax rate should be 7.75% but they only charged me 3.35% of the residual value in the “Residual/Payoff Tax” line. Odd.

So technically if Audi financial calculated the tax correctly, you won’t owe any tax when you pay the payoff amount. Is that correct? That’s like if you payoff by early buy out of the lease and keep the car.

Correct. But just did the calculation again and realized the “residual/payoff tax” audi refunded me is only the tax portion of the remaining lease payments, not tax on the payoff.

Did you send Audi Financial a check for the pay off amount? Or do you have to go through an Audi dealer? Is the payoff amount all-inclusive with no extra fees? I always wonder because the payoff quote in myAudi online has so few line items.

I got it directly from Audi financial after calling and getting transferred around quite a bit. It was just four lines:
Residual Value (the amount in my contract)
PLUS Residual/Payoff tax (taxes I’m remaining pmts.)
PLUS Remaining future payments (excluding tax)
MINUS Lease charge Rebate (interest that hadn’t accrued yet in remaining payments)
= Payoff Amount

In my case the Rebate from saved interest on my remaining 17 payments (out of 39) of $960/mo came out to just over $3k.

Thanks for the details.Those are the same four lines in the online payoff quote. Looks like tax is still owed by the new owner for the residual value.

This varies by state

Have you completed the buy out? Do you pay the disposition fee when you buy out early? Any other hidden fees or surprises on top of the 4-line buy out quote from Audi?

No surprises. My bank paid them off and no tax triggered. And because I sold it 4 days later no need to pay tax. If I get a tax bill (which I doubt) I’ll file for an exemption. But otherwise just fedexed my last signature and waiting to get a pickup date from Vroom.

Vroom is telling me that there is 14 days cool off period after the leasing company transfers me the title (after buyoff). You said that you sold the car after 4 days. Is that after getting the tittle? Also did you get the title by mail or is there any online system where you can get the updated title.

Everybody seems to talk about this from the standpoint of paying off with cash. I paid off with a loan so never received the title. It went electronically to the bank. And then to Vroom I assume. No DMV, no tax, no waiting by the mailbox for a pink slip.

Ok. I’ll rephrase my question. Did Vroom tell you that you need to wait 14 days after buyout before you can sell it the car to Vroom?

No, I got the loan Last week and the payoff amount a day later, signed the contract this week, they took my car today and said I should have the check in 2-3 days.

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