Washington State. Leasing novice and financial unwizard (as evidenced by desire to lease a new car in general).
I am considering lease of a new Volvo XC60 T8 (PHEV). I have a 2019 Honda Ridgeline (24-28k value) to part with (fully paid off).
The conventional wisdom to avoid downpayment on lease makes sense. At the same time, as I understand it, there is a decent tax break when trading in, since the taxed value will be (New Car - Trade In). This changes the new car price from about 75k to about 50k. Napkin math shows this tax reduction being around $2500.
Assuming I can get the trade-in price I would like, pros of trading in are:
tax saving of $2500
much lower monthly payments
very convenient sales process of existing vehicle (vs selling to public)
drive old vehicle to dealership, leave in new vehicle (I live some distance away so this is big)
Cons are:
Youâre not âsupposedâ to pay lease upfront due to opportunity cost and liability in case of vehicle damage. However, I might additionally buy out this lease early in order to gain the advantage of the $7500 credit only for leased PHEVs, not for sales. This would incur the same con, but also reduce the vast majority of the lease ârentâ fees.
I am inclined to consider the trade-in option, but I am probably overlooking something. Is it simply always better to sell old car for cash and keep the lease entirely seperate? Or does the trade-in tax impact this?
separate is for best value.
Did you check Carmax / Carvana/ GivemetheVin and get any bids from them?
Though the Volvo is a nice car but I would keep both cars instead. Especially since the ridgeline is a truck and itâs going to be useful in spots the Volvo wonât be.
Yes I did get 24k from Carvana and 25k from Carmax. Havenât seen GivemetheVin, I will take a look.
The RL is a fantastic truck - but after the first two years I have barely used the bed (except to help others move) and it does take a fair bit of gas, and is a little big to park. I was using it initially for lumber and landscaping materials but have switched to having that stuff delivered. Meanwhile, my wife has a van which can carry full sheets of plywood and is fine for camping. I rarely go off-road. I did end up loving the interior comfort of the top-trim which is what led me to looking at entry-level luxury vehicles such as the Volvo, Audi, Lexus, etc. My location and needs seem a perfect match for PHEV.
Iâm fairly focused on the Volvo. I was looking also at the Lexus NX450h+ but availability is low, it seems glitchy and buggy, it is ugly, and bougie as this is, doesnât come with heated rear backseats (important here in the NW).
I did hear back from an auto-purchasing consultant who clarified that I absolutely should not consider trade-in and only pursue a direct sale (including firms like Carvana), so I guess my question here has been answered.
I would agree, but a Volvo takes a bit to get used to.
The infotainment is a bit ârestrictedâ and doesnât give you many options to customize. TPMS is a green / brown / red? light. So you never know when you should top up your tires until they are 10 lbs low and pretty critical. (I took the car in randomly and found out I was 10 lbs down..and no TPMS light in the car)
If you get the âbutt2startâ version, leaving the driver seat means your passengers sit in a car that is off and dark.
And this really nasty bug in the software where all sound shuts off requiring you to âDid you Turn it Off and then Onâ is really starting to annoy me.
Did you look at the Sorrento or the Tucson / Sportage AWD PHEVs? They have some good deals as well.
And of course get it really soon, before the Tariffs kick in.
You can still trade in your car to same dealer on the same deal, but instead of applying the entire $25k as a down payment, have them apply $1k as your DAS and write you a check back for the other $24k.
Putting $25k down on a Volvo lease is crazy.
Also AFAIK Washington taxes the monthly payment, so your tax âsavingsâ with putting $25k down isnât correct either.
Iâd start by building a dummy deal with the LH Calculator on whatever new car you decide on, you can easily play around with all the variables of the trade and taxes etc. to see what makes the most sense.
Thank goodness somebody set the OP straight on this deal. Plus I think all the good Volvo deals are gone for now. Wait until the end of the year and see if some of those deal return.
Thank you! I was also set straight on the tax thing by an auto-buying consultant. Asking the dealer to purchase existing car and giving cash for the remainder is great, I will see if that is possible.
I was wrong with these calculations. As mentioned in the first line of the post, I am not familiar with auto financing etc. Iâve since been set straight that the tax advantage is not very significant.
If you used the trade as a cap reduction, it (cap reduction) would not be subject to tax. However, if you used cash in lieu of the trade, the cap reduction would be taxable. Perhaps thatâs what you were thinking. Either way, itâs not prudent to put money down on a car whether you lease or buy. You risk losing all or part of your down payment (i.e., cap reduction) in the event the car is stolen or totaled. Furthermore, a car is a depreciating asset and, as such, it is an expense, not an investment. Also, @max_g is correct. A trade used as a cap reduction does not change the car price. You still have contributed money whether itâs a trade or cash. Remember that, generally, sell price - down payment = amount financed where sell price is fixed and the latter two are variable.
Having the dealer cut you a check and using it to pay the DAS and pocketing the balance is the best strategy. Use those dollars for other more worthwhile goods and services rather than tying it up forever in a depreciating asset. The only exception might be if your cost of money (e.g., money factor, interest rate) far exceeds your after-tax opportunity cost of investment. However, there are other tangibles and intangibles to consider that involve personal preferences for which there are no wrong or right answers.
Youâre not saving $2500 in tax. You only pay tax on the lease monthly payment. Itâll reduce taxes a little bit nowhere near $2500. More like $500ish over the course of the lease.
Sell the car independent of the lease, and put that amount in a CD. Youâll come out way ahead.
