I know you get a tax savings on the value of your trade when you purchase a vehicle. Can someone explain how NJ handles that tax savings (if any) on a lease when you trade in a vehicle at the same time? I know the dealer can cut me a check for the value of the trade, but does the tax on that value get deducted in the lease calculation?
Thanks in advance for any responses.
No tax advantage nor savings, because the dealer needs to buyout your lease from your leasing bank. Then that equity is, as you said, cut to you or they simply roll any positive equity into your next purchase. What bank holds your lease?
As soon as a lease enters the equation, all sales tax benefits are lost. only benefits are by trading in a buying a car.
the trade in is an owned vehicle, not a lease.
29. Can a dealership apply the value of a trade-in from a purchaser as a credit for a
leased motor vehicle?
Yes. The value of a trade-in can be used to reduce the tax base if the execution of the
contract for lease and the trade-in occur at the same time. The dealership must obtain
the certificate of title for the trade-in and retain a copy of it as part of the lease transaction.
The credit for the value of the trade-in from the lessee can be used when calculating the
Sales Tax due on a short-term or long-term lease using either the original purchase price
method or the total lease payments method. (See Question 19).
So you’re right but unfortunately this doesn’t work in practice IME. The dealers I’ve worked always insisted on collecting sales tax up front even when I shoved this document in front of them
Yea I’m not in nj so I don’t have any 1st hand experience but it appears the tax credit is very much alive Preserving the Vehicle Trade‑in Tax Credit - New Jersey Auto Retailer Magazine
Yeah that is still alive. So IME, a cash/finance to new cash/finance always works whether it’s at an in state dealer or an out of state dealer. A cash/finance to a new LEASED car is workable in theory but I’ve never had luck with it.
From experience and I agree with @zaimer this makes more sense if you trade a owned car to finance the following vehicle. What I did in the past is use my trade in equity to cover the onepay for a lease or MSD to save cash on the interest.
the value of the trade that is being used towards the new car x the tax rate = the tax savings. theoretically possible to have 0 tax on an nj lease with an owned trade.
Ok that makes sense. If tax savings on the trade in is more than the tax on the lease, I assume the savings is limited to the lease tax, and you can’t credit the rest of the trade in tax to a cap cost reduction correct?
that’s right.
While I fully agree with @aronchi here, I have found not all NJ dealerships honor this method of tax accounting. It’s been pretty close to 50/50 so don’t assume a dealership will, ask them upfront.
I guess I shouldnt be so surprised by dealers doing wild things, but this, will they, wont they BS is infuriating, it is literally the law….where is Tomislav? he will go to bat for me with the dealer….and what is the dealer doing with the tax savings they are stealing from customers? pocketing? or sending to DMV? could you then request a refund from DMV?
Good luck with that 