Had a tax question related to a lease buy-out.
I originally leased my car (2019 XC90) through a NJ dealership where the sales tax was rolled into my monthly payment.
I’ve since moved down to VA and with with the lease coming to an end, am looking to do a buy-out. The payoff amount is ~$40.2k, or ~8% higher than my purchase option, the difference being primarily VA sales tax…
Might be right, but seems counterintuitive to me that the tax was paid in both NJ and VA… Am curious what others have experienced with the buy-out math when moving states. Is the onus on the buyer to inform the lessor of that change and have it recalculated?
Am specifically interested in VA to NJ, but I happy to hear about general experiences as well.
You’re not paying taxes in both states. The tax included in the lease was tax of the rent portion. If you bought that car outright here in NJ, you would pay 6.625% tax on the ~$40k residual amount.
VA wants their tax, now that you reside there.
This is the important part.
In a tax upfront state like NJ, youre paying the tax on the cost of the lease, which only applies to part of the value of the vehicle. When you go to buy it out, you have to pay tax on the remaining amount of the vehicle, in this case, the residual value.
Makes sense, thanks for the quick answer… Now the decision is whether to lock in the negative equity…
Please explain? Most cars leased 3yrs ago should have positive equity.
Was actually the reason why I thought there was something off with the tax.
The total cash out on the payoff is $40.2k, the vroom / carvana average is in the mid-$39s… The car was sourced through here, so am confident my original cost is not (overly) inflated.
What is the lease pay-off (residual amount listed in lease) on your XC90?
Compare that amount not included pay-off taxes w/ Carvana and Vroom and that will let you know if there is positive equity or not.
From doing some quick math to backout taxes, it sounds like your buy-out price should be around $37k. If so, and Vroom / Carvana are offering you $39.5k then you have $2500 positive equity. BUT you still need to account for sale tax of the buy-out, that is what is making you’re current lease not desirable for flipping for profit.
Your Volvo payoff also includes estimated VA property tax (~$1,200 on 19 XC90) for the whole year. You should technically get the prorated amount back from Volvo in October.
I sold my '19 XC90 for $45k, so you do have equity.
A. 8%? VA sales tax is something like 4.15 or 4.25%.
There is a separate property tax which you’ll pay directly to the city/county annually from what I understand.
B. If you don’t have obvious positive equity in what is a highly inflated used car market, then I’d be wary of buying something at what was obviously a highly inflated RV.
C. Getting a good deal from here 3 years ago meant the payment/total lease cost was good. That has no bearing on whether you should buy that car today. If anything, a good lease deal usually requires an inflated RV. The higher the RV, the lower the payment. All else being equal.