US Federal Tax Rebate and Lease

[CJMaine]

Has anyone figured out how the tax rebate works with a lease purchase? I know that the Nissan dealer in my area gives credit for the full $7500, even with a lease purchase. My i3 is in production and should be here late June. Can't wait and am just figuring out the best financing.

 

[Mike74jcw]

My i3 is finishing production now and I am probably going to go with the Owner's Choice with Flex option. For whatever reason, the BMW lease only gives you a credit of $4,875 versus the full $7,500 that you get with OCF. I got the $7,500 off the lease on my LEAF last year and my payment is only $250/month. Nissan (or BMW) claims the credit when you lease - it basically comes right off the MSRP and lowers your payment. Come tax time you don't do anything.

The lease deals (now advertised on the BMWUSA website) don't seem to be very good, in my opinion, as the payments are high unless you get a base i3 and you have lots of cash to plunk down.

The OCF plan is like a lease except you own the car similar to regular financing. It's a balloon type of financing option. You agree to keep the car for a set term (up to 60 months) and have lower payments with a large balloon payment at the end of the term. You can turn or trade the car back in for a set residual value or keep it (i.e. pay it off or refinance). The "Flex" part is BMW loaning you the full $7,500 (if you qualify per IRS rules) until you do your taxes next year and get the money back from the Gov. The $7,500 credit makes your monthly payments lower but gets added to your balloon payment at the end for payback to BMW or you can pay it back between now and then.

 

[CJMaine]

Thanks, Mike! I will look into that. My dealer hasn't been too knowledgeable on the details of these cars yet. Last time I talked to them, at the Drive Event in mid-may, they had yet to receive any cars because their allotment was all REX models that were held up at the Port. They probably know more now and I believe they have received and sold two cars. I didn't order the REX and I think my car will be their 3rd i3.

 

[jadnashuanh]

The deciding factor on the tax rebate is who ends up owning the car...if you as the individual purchase the car, you can get the full tax credit. If you lease it, the leasing company does not get a $7500 tax credit, it's smaller, and you are getting a credit for that smaller amount...the dealer isn't making money off of it (at least as I understand it). The tax credit was intended to benefit the purchaser of a qualifying vehicle, and with a lease, that's not you!

Now, there is some talk about increasing that to $10K, but the way the bill is currently written (it's not passed as far as I've heard), it is capped at a certain dollar amount and I think the i3 and the Cadillac (Volt clone) are above that cap, so the current limit of $7500 would still apply.

 

[brianives]

It is also my understanding that the $7500 credit only applies to the extent of your tax liability. You lose any unused credit and do not capture it in terms of a refund. So if you have large losses deductions or other credits, or just not enough taxable income, in the year of purchase you may not get the entire $7500. Can anyone else confirm this?

 

[jadnashuanh]

It is also my understanding that the $7500 credit only applies to the extent of your tax liability. You lose any unused credit and do not capture it in terms of a refund. So if you have large losses deductions or other credits, or just not enough taxable income, in the year of purchase you may not get the entire $7500. Can anyone else confirm this?

http://www.irs.gov/uac/Energy-Incentives-for-Individuals-in-the-American-Recovery-and-Reinvestment-Act:-Questions-and-Answers

IF your tax bill does not equal or exceed the credit, you lose the rest of it.

 

[bxb40]

Just making sure people understand, you will get the full credit if the total amount of federal taxes you already paid by having it held or will pay at tax day exceeds $7500. One does not have to underpay by that amount but if you are good with modifying the w4 to do that, can be the best option.

 

[jtoast]

Modifying your W4 does not change your tax liability. It only changes the amount of your withholding and it is your tax liability that matters in this case.

simplified examples:

You make 100K and your tax liability for the year is 25K and you paid in 30k, your tax liability would be $25,000-$7,500 which = $17,500. This means your refund would be $30,000-$17,500 which= $12,500.

If you make 50K and your tax liability is $3K and you paid in 4K, you would get $3,000 of the $7,500 tax credit thereby reducing your tax liability to zero and end up with a $4k refund. The other $4500 of the credit would be forfeit.

 

[jelloslug]

YOU don't take the tax credit on a lease, the financing company does. How much of it they pass on to you is up to them.