I just sold my end-of-lease 2020 Honda Accord to Rodo and am trying to confirm how taxes work on this sale. The buyout price was ~$19k, the sale price was $26k, and so Rodo wrote me a check for the $7k in equity. I think I’m just responsible for capital gains tax on the $7k in equity, but can anyone confirm that? I’m in NJ, although Rodo is in NY and it was an NY bill of sale.
And a quick Rodo review as bonus content: I suppose I should reserve final judgement until I see a $0 balance on my American Honda Finance account but so far I couldn’t be happier with the Rodo lease buyout process, it honestly sounded a little too good to be true, but it really was just as smooth as it sounds. The whole process is really easy, after you submit the quote request form on their website you handle the rest of the process over email. You send some pictures and other info (odo reading, etc) so they can do an “appraisal” – after seeing the pictures they knocked $500 off their quote due to some minor damage on the bumper, but they didn’t say anything about the damage to the back seatback from the car seat that was in there for 2 years, so that felt pretty fair. Once you agree to that you sign the bill of sale and schedule pickup, they picked my car up 2 days after signing. This is the part that “felt” the sketchiest – they come and unceremoniously take your car away while you wait to get paid. That was last Friday afternoon, so they sent my check out on Monday and I got it on Wednesday. Now I’m just waiting for Honda to receive and process the check before I consider this fully done.
No, you are not responsible for any capital gains tax. Don’t think of that as a gain but rather a “rebate” on your total cost of leasing the car for 3 years.
They didn’t charge a fee, at least not explicitly, but maybe it’s built in to their quote? Rodo confirmed that the payoff amount they got from Honda was exactly the same as what I saw in my account, and my check from Rodo is exactly equal to the sale price minus that payoff price.
Interesting… Is this implying that the lease payments are factored into the cost basis, which wind up making the sale effectively a loss hence the no taxes? Or am I misinterpreting that?
I don’t care what you do, or what you can afford. I just think asking internet randos for tax advice is a recipe for bad outcomes. But you go off, king.
Think of it this way, say you financed a car for $50k, you decide to sell it in 3 years for $27k when your loan payoff is $20k. You walk away with $7k in equity. No one would even think to consider the $7k as a capital gain in this case.
It’s really no different with a lease.
I guess having equity with a lease is unexpected and a rather new phenomenon over the past 2 years, so folks mentally consider this a some type of “free money” which they should owe taxes on, but generally speaking that is not the case.
I think a factor in that discussion is a lack of knowledge on their part regarding lease contracts.
In many states, a lease contract with a below market purchase option, as would be the case in a lease purchased with equity, is treated as a purchase from the beginning for cash basis purposes.
Further, what they really dont dive into is a case when a 3rd party dealer essentially purchasing your below market purchase option, the value of which is determined by the money you have spent.
That all really just goes to say this isnt a super cut and dry situation and should be discussed with one’s accountant.
Pretty sure Intuit / TurboTax has a message board that qualified parties can respond to questions a la LH style which may be a few more grains of salt than here.
