New Jersey lease tax calculation

Ask the Hackrs
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61

wait wait. time out. We disconnected. I wasn’t referring to trading a leased car on a lease. OP was asking about a car he has $8k equity in, so I assume that car is a finance, not a lease. And you and I already discussed purchased cars back in Jan (earlier in this now merged thread, it seems), where we agreed the full value is credited, not just equity (you checked your past contracts at that time).

BTW, we definitely disagree on the PDF you linked. It clearly states value, and value is independent of monies owed or equity.

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Rob,
Here’s what I said in that earlier post…

Yes, you’re absolutely right. I went back and reviewed the leases I negotiated involving trades and what you’ve described is exactly what happened. Don’t know what I was thinking. But, here’s another issue… Suppose only the monthly payments are taxed (like in CA) in a lease instead of the sell price . I haven’t paid tax on the entire vehicle yet, I’m getting a full tax credit on the entire amount of the trade. I can understand why one would get full credit in NY, NJ, Ohio, and NJ. But what about those states that tax the lease payments as they are received?

I should have been much clearer and must apologize. I did not review the lease contracts. Never made any mention of lease contracts. What I reviewed were the excel spreadsheets I created. The leases I reviewed were NOT from NJ, Ohio, or NY… sorry. They were from a state (can’t remember) that taxes the selling price (I know it was not Texas). Shortly after our discussion, I purged those excel files from my computer as they were older than two years. I was searching for exceptions or, cases where you would be right. Now, there may be instances where your claim could have some validity with respect to leases but, can’t think of any off hand. :disappointed:

Here’s a recent FMC lease worksheet originating in NJ…

Dealer%20Lease%20Worksheet%202
Dealer%20Lease%20Worksheet%202561×540 74.6 KB

So, let’s be perfectly clear. I’m talking about leases, not purchases. Don’t know how NJ treats taxes with regard to purchases. The pub I posted above pertains to leases only. If you look carefully at the lease worksheet, you will see that there is 4045.31 of trade equity. A portion of that (2293.80) is used as a cap cost reduction (which reduces the base payment and,thus, the tax base). The remaining portion (1751.51) is applied toward drive off fees. I’ve confirmed all the calculations in this worksheet and, as you can see, in no way is the trade value of the vehicle (21053.44) used to reduce the tax base in this lease. If it were, FMC would kick it back and not fund the lease until errors are fixed.
You also stated…

I wasn’t referring to trading a leased car on a lease. OP was asking about a car he has $8k equity in, so I assume that car is a finance, not a lease.

WHOA!!! Are you telling me that a lease car can’t have equity? If so, I vehemently disagree. A leased car can have equity. I have traded leased cars with equity and, used that equity as a cap reduction to reduce my tax base.

So, I guess we were talking about two different things… you (purchases) and me (leases).

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$8K equity on a lease? I’d be really really surprised. I mean, I suppose if someone paid for 20k/yr and used 5k? Not impossible, but I would think that to be an extremely rare exception, and, on a $25k car like the OP has, that’s a 30% RV error. Does that happen very often? I definitely don’t have enough leasing experience to know. I would think, however, the lenders should know better. Then again, I suppose as long as they are getting more money, and not less, they are doing OK for themselves, just not their customers.

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Notice that I’m not claiming that the trade is a lease. Fact is, I simply didn’t know and neither does anyone else except the OP. I’ve already asked the OP if the trade is a lease or a purchase and was told that it is a purchase.
Your statement…
I wasn’t referring to trading a leased car on a lease. OP was asking about a car he has $8k equity in, so I assume that car is a finance, not a lease.

The way this was written, suggested to me that you thought a leased vehicle couldn’t have equity but, I wasn’t sure when I said…“If so, I vehemently disagree.” And, yes, it is possible for this trade to have been a leased car (I’m not going to get into all the permutations)… but, I do agree that it would be a long shot.

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Rob,
Below is a statement that I made in an earlier post.

For some reason, I felt the need to revisit the lease worksheet and re-do all the calculations. As it turns out, I was dead wrong and you were right. The 21053.44 was, indeed, used to reduce the tax basis. I have no idea how I could have missed it but, I did. Shame on me! Just thought you should know.

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Really cool of you to check. Much appreciated. I sometimes worry I’m losing my memory. :laughing:

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No, you’re not losing it. I’m losing it.

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How’s the tax rebate when trading in works?
For example I have a trade in that I owe 20,000 and dealer offers me 15,000. In that case, I have -5,000 equity.
If the total lease payment of the car is 15,000 and the state tax rate is let’s say 10%. (1,500)
When I pay off -5000, will my trade in tax (15000’s 10% = 1500) reduce the tax I will be leasing(15000’s 10%) to $0? I really want to know the formula of tax rebate on trading in, but I can’t find clear example yet. Please anyone help me.

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Dr. NJ Tax @AP919

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I’m not sure I quite understand what you’re saying: when you “pay off the ($5,000), will your trade in tax reduce the tax?” How could that possibly reduce the tax to zero? Negative equity is not a positive number; it’s adding to the lease balance. You won’t be taxed on it, but it can’t possibly reduce the taxable amount, because it’s not a trade on which you’ve already paid tax and you’re using it in lieu of paying cash. The negative is just added to whatever the lease amount is and divided by the term of the lease after interest charges, etc. are added in.

There’s no “formula.” Your trade is either negative or positive, and it’s added to the amount of the base payments multiplied by the term of the lease.

New Jersey says:

The following items are excluded from the sales price:
• The value of the lessee’s trade-in motor vehicle (see question 28);
• Any negative equity from a trade-in motor vehicle that is rolled into the lease;
• Any prior lease payment balance that is rolled into the lease;
• Sales Taxes that are rolled into the lease; and
• Actual costs imposed by the New Jersey Motor Vehicle Commission for title and
registration.

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72

Thank you.
I was wondered because when I buy a car last time, I owed 18000 and the dealer valued it 15000. Then when I actually got into the paperwork, the financial manager added up approx 1100 for what they called “tax rebate.” Which increased my trade in value to 16100. That time negative equity of 3000 were rolled into new car payment.
I am trying to not lose any sources that dealer could possibly mark up to their profit.
Thank you again for your reply

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Regarding the Luxury Tax in NJ of 0.4%, does this get applied to Selling Price before rebates? Which if I were to aggregate Sales & Luxury I would be overpaying for other taxable items such as Lic/Reg, Doc Fee, Lien Filing; these fees if taxable would be at the Sale Tax rate not the combined, correct?

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Also is Acquisition Fee taxable?

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Yes, you pay tax on the rebates, which are part of the sale price, so they are included in the luxe tax. In NJ, everything its taxed other than MVC and tire tax.

I never thought about luxe tax on acq and doc fees, but, according to the NJ tax guide, those fees become part of the “sale price,” so I suppose they are taxed at the luxe rate.

I wonder what would happen if the car’s selling price was below the $45k threshold, but then the fees pushed it over. That could be ugly.

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NJ’s “Supplemental Titling Fee” of .4% is charged only on the actual vehicle sales price as a separate upfront item, just like a second dmv/reg fee. That vehicle sales price would include anything the dealer accounts for in the back screen as an add/subtract to their cost on the vehicle, which is not line-item’d as a sale on your bill of sale or contract, such as remaining payments they are “eating” from a prior lease, non-taxable rebates, shipping they paid directly to swap in the car, etc. If you use the leasehackr calculator, run the NJ lease at 6.625% upfront, take your sale price from up top, multiple by .004, and add that to the DMV line at the bottom of the calc. On a $50k sale price vehicle, this would add $200 to the roughly $300+ NJ dmv on a 3-yr lease…

The other individual upfront fees (acquisition, doc) excluding the dmv/reg fee, and any add-on items (wheel&tire, wear&tear, etching, nitrogen, maintenance plan, etc), and of course the rest of the actual lease amount is charged 6.625% upfront. You can then roll whatever you like into the cap cost/monthly payment.

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77

Great explaination!

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78

If my purchased trade is valued at 10000. Can I use the full 10000 as cap reduction ?

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Why would you? Who puts $10k down as CCR on a lease?

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where would I put my trade “value” in this calculation.

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Cap reduction