All good information - thank you.
Is the residual on the leased car set equally no matter who the buyer is?
At my old company, i got a company car as part of my compensation (I was not in sales). The residual on the leased company vehicle was lower than what the car will sell for. I paid the residual and sold the car to friends.
One more thing I noticed on the leased vehicle is that tax is only paid on the leased portion not the MSRP - correct?
Very good questions!
The residual is set in stone.
Everybody gets the same residual.
As you saw, sometimes the residual value is less than the street value at lease end.
They guessed wrong 3 years ago.
However, since the lease payment is figured on the residual value, you may have paid $10 a month or more for the lease. No hanky-panky there. They just guessed wrong 3 years ago.
On the flip side, if they guess wrong the other way and offer you your old car for $2000 more than it is worth, you can politely decline. You are under no obligation to buy. However, the lease company knows this so they will come down on the price to get close to the real value. Saves them handling and auction fees. SO, if the come down $1500 from the residual value, you may just buy it.
The sales tax is something I wanted to address but didn't.
IN THEORY, you pay sales tax on the portion of the car you are leasing (the depreciation).
Why pay tax on the residual value if it isn't your car and it will be taxed again when sold again?
Well, most states figure out the payment, before tax, and then tax the payment.
Some states tax the entire amount you are paying and charge tax on that.
It works out the same but the actual lease lists it different.
A lease contract is very complex and really shows very little useful information.
Like all legal documents it is full of legalese and double talk.
Now, there are states that tax the entire price of the car (Sell Price plus DOC fee) and add the total tax into the payment. IL does this. If you know IL, you are not surprised
However, there is a tax credit that is tied to the car at lease end. The residual value should not have been taxed so states like IL attach a tax credit for the overpayment to the VIN number on the car. If a dealer that does leasing buys that car at auction, the tax credit goes with the car. This tax credit can be applied to any other lease that dealer makes (as a tax credit). (Same state only).
So, when you turn in a lease and don't buy it, it is owned by the lease company, not the dealer.
The lease company sends someone to inspect the car for excess mileage and/or excess damage of any kind.
If there are charges, the lease company will send you a bill. You are required to pay it or they will mess up your credit report. Since you did not finish paying for the lease, per the lease agreement, (excess damage), and you refuse to pay it for whatever reason, the lease company will show it as a charged off lease agreement.
Basically it is reported as a repo since the verbiage is the same. Not good! If you are buying another car, this damage bill can be rolled into the payment of the new car (like a trade in payoff) so if you have a $2000 bill for damage and excess miles you can take care of it.
Once inspected, the lease company picks it up and sends it to the auction. Lease turn-ins are a great source for new car dealers to get same make late model turn ins. If you are an IL dealer and lease cars, these lease turn-ins come with the IL tax credit (if sold in IL)
So, if you, the original owner, did not lease another car, you cannot get the tax credit. It follows the car.
If you decide to keep the car you leased you will not have to pay tax on that purchase, since you already did.
If you buy a car you cannot use the lease tax credit because you did not lease a car.
Now, to take it further, the dealer specifically looks for IL lease turn ins if he is an IL dealer.
Lease turn in sales can only be attended by dealers who use the same leasing company (like Ford for Ford Credit, GM dealer for GMAC, Chrylers dealers for
Chrysler Finance, Nissan Dealers for NMAC leases, etc.
So, when someone leases a car in their dealer and they have lease purchase tax credits in store, they can use these tax credits to pay the tax owed on your lease, that you paid the tax on. You pay $2000 in taxes on your $25,000 MSRP lease and the dealer has a $1000 tax credit from buying a lease turn in, he can apply the tax credit of $1000 and only pay the balance of $1000 of the $2000 you paid.Tax credits are legal. Nothing wrong about this but IMO it is slimy because the dealer picked up an extra $1000 profit which no one gets paid commission on. Of course, he may have paid
an extra $500 for this car knowing it had a tax credit of about $1000. Who knows?
Nice, huh?