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Tips on Buying Cars/Lease Trade-In Credit


Double B wrote at 2011-01-05 05:57:51
I am not sure JB is correct.  Once you pay the full balance including the residual and title the previously leased vehicle, you will pay taxes based on the purchase price paid to the leasing company, which includes the full balance and residual, thus, the transaction is a wash.  No tax credit when "trading" a leased vehicle.

Vet wrote at 2012-04-13 22:01:45
You are not correct.  If a current lease vehicle is early termination and paid off the lessee does not have usable tax credit.  The tax is the liability of the lessor not the lessee.  The lessee would still have to pay sales tax on the residual value if he were to choose to purchase the vehicle at the end of term. At that point he would own the vehicle and get that credit for taxes paid.  The lessor owns the vehicle and the tax credit not the lessee.  He does not own the vehicle to receive the credit if he is trading it it prior to termination.  

The dealer should satisfy the payoff and purchase the lease out from the lessor but not give tax credit for that amount.

This really is quite rational if you think about it.  The state has not received the tax from that individual to credit them with the offset.  If that was the case the lessor wouldn't be paying sales tax on the residual if he were to purchase the car end of term.   You can't have it both ways.  To even further complicate the issue there are transactions in which the lessor is using state tax credits to offset the tax liability that is generally transferred to the lessee.

You are giving incorrect information and erroneous advice.  

JF wrote at 2012-11-10 15:04:32
I disagree on your point about getting tax credit on a leased vehicle.  One important point has been overlooked.  If you pay off a lease and get the title, then you still have to register the vehicle.  To register the vehicle you would first have to pay taxes on it.  You could then trade it and receive tax credit.  You could not trade it with an open title.

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Jeremy Beck


I can answer any question as it relates to the purchase or lease of a new or pre-owned vehicle. I can give you advice in purchasing from a franchised dealer or private party. Buying a vehicle can be a very difficult and frustrating experience, but it doesn't have to. Know before you Go! Let me help you with any of your questions.


I have been in the automotive business for 10 years. I have held every position from salesperson, Finance Manager, New Sales Manager, Used Car Sales Manager, Finance Director, and Director of Sales and Finance. I graduated from the University of Texas with a major in Business Administration, and have held many sales jobs in the automotive sector. I am a member of the Association of Finance and Insurance Professionals (AFIP). I have also been trained by some of the best schools in the business including JM&A, Ethos, VT/AIG, Inc, and various others.

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