Hi all - apologies if this has been answered already. I’ve spent a few days searching the forum and can’t find one specific answer to this situation. I’m relatively new to leases, and so I appreciate any clarifications to my misunderstanding.
I am looking to lease a Prius Prime in Massachusetts in order to get the $4,500 lease cash, then immediately buy out the lease. I have an owned vehicle with $35k in equity to trade in. In MA, trading in an owned vehicle towards a lease will reduce the sales tax price of the vehicle being bought or leased. I am interested in minimizing my sales tax.
In my mind, the way to do that is to use my equity to pay as much capitalized cost reduction up front as I can. That way I essentially only owe sales tax on the residual value. Is that correct? There is a lot of advice in this forum to avoid any down payments on leases, but others say paying as much CCR is desirable.
If correct, that also might mean that it benefits me to reduce the residual value as much as I can by extending the terms of the lease to say 48 months, 15k miles per year. That would allow me to pay greater CCR up front using my equity. Is that also correct?
And, how does the money factor effect immediate lease buyouts? The MF I saw on the first deal was 0.00895, which is an absurd 21.48%. The dealer actually told me to wait until the 15th because money factors are so absurd right now. Does the MF matter if I pay off the lease immediately? My guess is that it will only effect the first payment, so maybe not so much money.
Finally, does this situation make sense to use a one-pay lease? Will that change the money factor importance? Won’t a one-pay lease include all rent? Will the unearned rent be paid back once I pay off the lease early?
Thanks in advance for your help - I really appreciate it. I’m going to continue searching the forum to find if this question is addressed for Massachusetts.
Nobody answered, are you still trying to figure this out?
Unfortunately, MA is quite good at creating unavoidable tax codes. No matter how you maneuver lease terms, later when you buy the car off lease and go to register, you’ll pay 6.25% in MA sales tax on the amount you paid. This will be your remaining payments + residual value. You can play with different term lengths to see if adjusting residuals makes any positive changes, my guess is they’ll all basically net the same total (or longer terms are worse). One thing to think about is the risk of being double/over taxed. MA has some calculation to determine a minimum taxed value for vehicles. Somehow tied to blue book, it basically ensures they can tax gift transfers and things of that nature. I could see a scenario where you walk in with a bill of sale for ~$15k, but MA decides since it’s such a new car the taxable value is greater. Be careful…
You definitely want a lower MF. Once you sign your lease, you owe those payments. Whether you pay them over time or up front (or in a couple months), you are obligated to pay all of them, and they already include interest. The only money you’d save is not paying taxes on the yet to be made payments, but that will equalize when you register and pay sales tax on the purchase price.
Ultimately, the real decision to look at is if the MF generates interest greater than the $4,500 incentive. If it does, just buy the car and avoid all this unnecessary complexity. Good luck! Please come back and share how the numbers ended up working out!
Nobody replied unfortunately, but I moved ahead with my plan after doing some more research. I did swap out the Prius Prime for a RAV4 Prime with $6,500 lease cash.
“Once you sign your lease, you owe those payments. Whether you pay them over time or up front (or in a couple months), you are obligated to pay all of them, and they already include interest.”
Unearned rent is not due if I buy out the lease immediately. So I end up paying one month of rent - that makes the MF much less important to me.
Basically it worked out like I thought - equity in an owned trade that is used to pay down the lease is not a part of the taxable sales price in MA (though as I learned, not all dealers believe that to be true). I pushed the lease as far out in terms of time and miles as I could to reduce the residual, then I used as much equity as they’d allow for a capitalized cost reduction and took the rest of my equity as cash. I just sent in my check to buy out the lease and it’s basically just the residual (plus a little depreciation, I couldn’t pay down the full capitalized cost). When I register the car, I will owe sales tax on the residual (somewhere around $25k).
What numbers would people be interested in seeing?
Correct, which is why I pointed out the MA regulations that say that any equity on an owned trade-in (titled to me) that is applied to the lease is not a part of the taxable sales price in MA.
Oops, sorry for passing bad info. I swore my last lease payoff was based on full payments, but I am probably mistaken. Thanks for calling it out and keeping me honest!
