TRAC Lease scenario with a conventional lease

Ask the Hackrs
1

I recently inquired about a TRAC lease for my next company car, and was told it is only available for commercial-style vehicles like trucks and vans.I need a GLC 300. The reason TRAC lease works for me is because in essence it is a conventional financing where the car is depreciated 100% over 5 years, with $1 purchase option, but it provides all tax benefits of leasing. And it is available for used vehicles.

I am wondering if I can “hack” a similar scenario with a conventional lease, depreciating the car 80% or so over 4 or 5 years.
Can I do that with upfront purchase of extra miles? Does $5K of extra miles decrease the residual by $5K?

Any other thoughts?

2

I believe that this is referred to as a TRAC (Terminal Rental Adjustment Clause) lease

3

Thanks for the correction. Edited.

4

Looking into this some more… For a TRAC lease to be IRS tax-valid it has to be a true “Open End” lease in which the value of the property (your car in this case) is determined at the end of the lease and adjustments made at that time. You have to be “at-risk” for the value of the property at lease end for it to work.

I suspect that most finance organizations would have a problem with this aspect. And I suspect finance organizations that would allow such an arrangement would cover themselves by making the lease expensive.

But what do I know, there must be companies that do such things.

5

If by “expensive” you mean lower residual - that’s my intent as I would be buying the car in the end.

6

From what I understand, you can depreciate a vehicle in 5 years for a business

  • Year 1 you can depreciate 40% of the value of the vehicle
  • Then you can depreciate the rest of the 60% straight line in the next 4 years

This was a conversation with my accountant between leasing and purchasing. We ended up leasing on our personal names and having the company pay for it (all company checks)