I live in New York and looking to lease a Toyota RAV4 prime . They are offering a $6500 lease cash which I assume will be done through TFS. I’m looking to buy out the lease As soon as I have an account set up on TFS
my question is do I have to pay taxes twice on this deal? If so, I assume this pretty much kills the deal as all the added fees with doing a lease plus taxes, negate any discounts
Yes. NY charges full lease cost tax upfront and you won’t get a refund for that when buying out early
Do a one pay and then buy it out so your buyout taxes are on a much lower value.
So you’re saying make the first months these payment then buyout? Not sure what you mean can you kindly elaborate?
thank you.
No, I’m saying do a one-pay where the entire lease is paid upfront at signing and then buy it out immediately.
In NY, you’re taxed upfront on the whole lease cost (not the whole vehicle cost) either way. You then get taxed on the buyout price.
By doing a one-pay, you’re lowering your upfront taxes by lowering the total lease cost and you’re significantly lowering your buyout price, in turn lowering your buyout taxes.
OK I get what you’re saying , put a sizable down payment to reduce the cap cost. when I buy out the lease, the second round of taxes I pay is a lot less ?
I didn’t say put a sizeable down payment.
Do a one-pay lease. That is a specific type of lease where the entire lease is paid up front. You get a money factor reduction for paying the whole thing up front. It has specific contract terms.
And take the longest term with the losest residual to help as well.
This is the way to structure it.
And don’t forget to actually negotiate the right aspects of the lease. Maximize the discount and allow them to maximize the MF markup if necessary.
Maybe. Probably better to target the term with the lowest money factor to maximize the depreciation to lease cost ratio, since that would result in the lowest net tax liability.
Good points Once I speak to the dealership, I will see how these numbers look on the spreadsheet appreciate the advice thank you all very much!
I’m looking to do this in NY as well. If I do a one pay and then buy out immediately, wouldn’t I be forfeiting the “rent” i’ve just paid up front? Would that not outweigh any savings in sales tax? Sorry, i’m just starting to wrap my head around this.
No. Rent charge is paid up front, but it is earned monthly. On an immediate buyout of a one pay, your buyouy amount is the residual value minus the unearned rent charge. Your buyout actually increases each month.
Thanks of the reply. So when you say “Rent charge is paid up front, but it is earned monthly,” Does that mean that even though i’m paying the rent up front, if I buy it out early I recoup that unearned rent on the 35 months i’m not actually leasing it after a buyout? Do you mind explaining a littler more about how that works? I want to make sure I understand how the one pay lease is a better deal if I buy out immediately in order to take advantage of the 6,500 lease cash Toyota offers and minimize the NY tax burden.
Correct. That’s why your buyout is the residual value minus the unearned rent and your buyout increases each month as that month’s rent is earned.
OK its making more sense now. So, by doing this I save about 200 on taxes on the front end but 1500 on the back end. Does that seem right? I know this whole site is about lease hacking but that seems too good to be true.
Aside from getting the agreed sale price down, any other things in the lease I should try to maximize? Or is a lot of the stuff like MF, months, miles, etc moot cause I’ll buy out? Thanks again for all your help! Really love the site and your help!
So not mention a buy out and negotiate a bigger MF bump for larger discount
How did this turn out for everyone? I am in NY too and trying to figure out if an immediate buyout could be worth it. Asking for a bigger discount and higher MF but don’t tell them the buyout plan might be a little tricky too!
Pretty sure you won’t be paying 6500 in extra taxes so should still net you savings. Someone here has to have done the math on it though. @delta737h maybe can help
The MF on the prime lease is only like 5.8%. Can also do a one pay and lower that. So might even make more sense to ride out the lease to term in Ny. Residual on these are low hence why the payments are pretty high. I would still expect them to have a good amount of equity in 3 years.
Not with a typical lease in NY. You’ll prepay the tax on the entire lease and then pay tax on the payoff. So you’ll pay tax on roughly 1.5 times the value of the car and pay tax on tax.
If TFS is like CCAP then you’ll want to do a one-pay lease.