Help me decide whether to lease or buy

[BrettS]

First, as a bit of background, I tend to keep my cars for a while (although not as long as some) and have never leased a car before. For example, right now I'm driving a 2010 Prius that I bought new in January of 2011. I'm seriously considering getting a Model S and my instinct is to get a loan, however, there are a few things that make me wonder if I should opt for a lease instead. I'm hoping you guys who are much smarter about this than I can weigh in here and help me figure out the best option.

First, there is the $7500 tax credit. I'm in a bit of a unique situation here in that I adopted three kids a couple of years ago and got a large tax credit for the adoption. This credit carries forward for a number of years and will reduce my tax to $0 for the next three years. Since the $7500 is a tax credit, it's my understanding that by purchasing the vehicle I will not be able to take advantage of the credit since I will not be paying any taxes this year. However, if I lease the vehicle, it's my understanding that the leasing company will be able to claim the credit (and theoretically pass the savings on to me).

Since I do like to keep my vehicles for a while I am thinking that I would likely purchase the vehicle at the end of the lease term. So my question is this... Would I be better off buying the vehicle outright (with a loan) from the start, knowing that I will not qualify for the $7500 credit, or will I be better off leasing the vehicle for the first few years, then taking out a loan to purchase the vehicle at the end of the loan so I can indirectly take advantage of the $7500 credit?

The second concern would be my desire to upgrade. I love technology and I'm that guy who gets a new iPhone every year on launch day. Up until now I've kept my cars for a reasonably long time, but conventional auto technology doesn't move very fast either. The 2016 Prius's look great and have some nice new features, but not enough to make me want to trade in my 2010 just for the new features.

It seems like Tesla tech moves much faster, though. Knowing myself, and looking back at the 2013 and 2014 Model S's as compared to the 2016 and 2017 ones I think there is a reasonably chance that if I went with a lease that when the lease ended in three years I may change my mind about purchasing the 3 year old car and want to upgrade to the newest model.

So rephrasing my question, if I did want to upgrade three years from now would I be better off buying the vehicle outright (with a loan) from the start, again knowing that I wouldn't qualify for the $7500 credit, then selling it or trading it in three years from now, or would I be better off leasing the vehicle from the start and indirectly taking advantage of the $7500 credit, then turning it in at the end of the lease in 3 years.

That wound up being a much longer post than I intended, but if you made it this far I'd love to hear your thoughts on these two options or any other things that I should consider as I make this decision.

Thanks much,
Brett

 

[Driver Dave]

I love technology and I'm that guy who gets a new iPhone every year on launch day.

Lease.

 

[TexLaw]

If you really are only going to keep it for a few years, then you likely are better off leasing. If you are going to just buy it off the lease, then you're better off just buying it up front, so long as you can carry forward that credit (I don't recall how that works). If you cannot carry forward the credit, then you're probably better off buying it off the lease, as you get some benefit from the tax credit, as it should be figured in to the residual.

There's something else to keep in mind with regard to Tesla tech, too. While it does move quickly, you don't have to buy a new car to get a lot of it. Other than new battery packs, a lot of the advancements come via OTA firmware updates. All currently produced MSs and MXs come with full AP2 hardware, so you're good to go on that for a while.

 

[BrettS]

So long as you can carry forward that credit (I don't recall how that works).

Thanks for the reply. From my research you cannot carry the $7500 EV credit forward at all, so it would have to be used this year. It may be possible to use that credit, then carry the adoption credit forward, however, the adoption credit can only be carried forward for 5 years from the adoption and right now it looks like we may not use all of the credit before it expires as it is (although we will be very close). So even if I could use the $7500 credit now and keep the adoption credit for later it would likely just mean that $7500 of adoption credit would expire before it could be used. I'm reasonably certain from my research that I would not be able to take advantage of the $7500 credit if I purchased the vehicle given my situation.

There's something else to keep in mind with regard to Tesla tech, too. While it does move quickly, you don't have to buy a new car to get a lot of it. Other than new battery packs, a lot of the advancements come via OTA firmware updates. All currently produced MSs and MXs come with full AP2 hardware, so you're good to go on that for a while.

I hear people saying that and it is certainly something to consider, but I also look back at the change from HW1 to HW2, which in my mind would be a big enough reason to trade in the car and upgrade. Full self driving ability is a pretty big thing for me. If there was another very large change like that 3 years from now, then I would very likely want to trade in and upgrade. But then again, maybe that HW2 will be good for the next 5+ years and the software updates will keep me happy.

The other thing I'm starting to consider would be buying (or maybe leasing) an older Model S with AP1 to keep my costs down right now. Once the full self driving option is available then I could trade in that car and upgrade to a newer Model S (or potentially even a Model 3), but I think this hinges on when full self driving will be available. My gut feel is that it's probably 1.5 to 2 years out at best and may likely even be longer. if that's the case, then this might make sense. If somehow tesla makes a miracle happen and full self driving is out by the end of the year then buying an older car now and trading it in 8 months from now would probably be a financially poor choice.

Thanks again

 

[Science fan]

Congratulations on your burgeoning family. Lease or buy is, of course, a personal decision. The $7,500 tax credit will be going away as soon as the first batch of Model 3 cars are sold. My wife and I had leased a Lexus for 27 months, with only a 7,500 miles per year allotment. Way too low. I put on 12,000 miles per year on it and was reluctant to drive it because each mile increased the cost of the lease. They even charged me a $350 fee to return the car to them. I find that I enjoy driving my S70 so much that I will likely put more than 20,000 miles per year on it. So, for me, buying was a no-brainer. I am hoping to keep my car for 12 years or so and will have more than 200,000 miles on it when it goes to the aluminum and lithium factory. AP1 is fine for me, at present. Just imagine the technology my 2028 Tesla will have!!!

 

[Sawyer8888]

It seems like Tesla tech moves much faster, though. Knowing myself, and looking back at the 2013 and 2014 Model S's as compared to the 2016 and 2017 ones I think there is a reasonably chance that if I went with a lease that when the lease ended in three years I may change my mind about purchasing the 3 year old car and want to upgrade to the newest model.

Thanks much,
Brett

I prefer the freedom that buying offers. Primarily, I like the unlimited amount of miles that can be driven when you buy.

If you grow tired of it after three or four years, then you can trade it in without lease penalties being part of the equation. Granted you will have paid for all of the depreciation during that time. Resale does seem to be pretty good right now. You may figure an average reduction of $8K - $10K per year in value over three years, perhaps? Really not sure on this one. But if you factor in covering the entire cost of the depreciation during the time you own it, then you won't come away with owing anything when you trade in. Not an exact science on this calculation, but maybe there is, years, miles, body condition.... But that would be relative to a lease anyway to some extent.

There are pros and cons no matter which way you go. I agree with you in that this car/solar panel/space exploration company will likely be advancing quite a bit faster than most over the coming years. There will be competition without a doubt, so you may even be swayed to another manufacturer by 2020. Perhaps a Tesla CPO lease would be best in your situation right now, if that is an option for you. This will allow you to save some bucks to put toward Tesla's Auto-Hover feature and the Time-Travel package which are almost guaranteed to be offered in future models.

 

[Sandy Chamois]

Would you mind clarifying how the adoption of your children results in zero federal tax liability for the next three years? You earn enough to afford a Tesla but pay no federal taxes, I am interested to hear how that works.

 

[SCDrJ]

I am pondering similar and have decided to likely go with lease for the following reasons:

Payments similar to 72-month loan with low down payment
7500 credit added to residual value, get benefit now.
Low down payment
Future-proofing - think about what a 2014 Tesla (pre-AP1, pre-dual motors) is... I just don't see MS as a "buy and keep long term" car for the average early adopter/tech junkie/luxury buyer right now.
Car gone before new car warranty is up

Downsides though are that you can't buy the car out (as possibly mentioned by the OP) unless you want to eat the $7500 benefit you got in the first place, and the APR is higher than financing...

Basically, I get to drive a MS worry free for three years without any headaches re: warranty, reliability, or having to sell/trade to get the next one. Decreases the "is now the right time to buy?" anxiety.

YMMV for sure...

 

[TexLaw]

If you cannot take advantage of the credit, then it doesn't make a lot of sense to buy a new Tesla outright. You're pretty much overpaying by $7500, and that's no small chunk of change. Go with a CPO or lease.

 

[anonim1979]

....
Once the full self driving option is available then I could trade in that car and upgrade to a newer Model S (or potentially even a Model 3), but I think this hinges on when full self driving will be available. My gut feel is that it's probably 1.5 to 2 years out at best and may likely even be longer. if that's the case, then this might make sense. If somehow tesla makes a miracle happen and full self driving is out by the end of the year then buying an older car now and trading it in 8 months from now would probably be a financially poor choice.

Thanks again

IMHO - 5 years+.
It has to be perfect. Not only good. PERFECT.
Otherwise media will eat Tesla and any government agency that "allowed" FSD car on the street.

There WILL be CPU upgrade (to the one that Tesla is making with Samsung) anyone that bought FSD now will get it for free (there is NO doubt about it - it is software that is costly not the hardware if you are the owner of all the patents, etc. like Tesla will be in a deal with Samsung).
Maybe - big maybe - if needed the mirrors could be replaced too - with ones with integrated LIDAR when that technology matures enough.

So any APv2 car will be one day FSD no matter if there will be "APv3".

 

[SCDrJ]

My basic premise is that most people who are willing to pay full price for a Tesla today are going to want whatever new version there is in 3 years.

 

[EinSV]

If you cannot take advantage of the credit, then it doesn't make a lot of sense to buy a new Tesla outright. You're pretty much overpaying by $7500, and that's no small chunk of change. Go with a CPO or lease.

I think @TexLaw nailed it. You should run the numbers but given your circumstances it is very likely you will come out ahead by leasing rather than getting no benefit from the $7500 tax credit, especially since you may want to trade it in in a few years anyway.

 

[BrettS]

Would you mind clarifying how the adoption of your children results in zero federal tax liability for the next three years? You earn enough to afford a Tesla but pay no federal taxes, I am interested to hear how that works.

There are a lot of incentives available to adopt children out of the US foster system, both federal and state. On the federal level, most, if not all, adoption expenses can be refunded up to about $13,000 per child through this credit. Adopting special needs children, as I did allows you to claim the full $13,000 credit no matter what your actual expenses were. This credit is non refundable, but it can reduce your tax burden to $0 for the year of the adoption and be carried forward for an additional 5 years or until it is used up.

I imagine this doesn't need to be said, but obviously I did not adopt the kids for the tax benefit. I have spent well over $13,000 per kid to take care of them and their needs.

 

[sdorn]

Note that on a lease they add the $7500 to the residual value, which lowers the lease payments but increases the buyout at the end of the lease so you lose the benefit of the $7500 credit if you buy the car at the end of the lease.

Other manufacturers apply the $7500 tax credit as a capital reduction which is much more favorable.

 

[BrettS]

Hmm, that's good to know and kind of negates the idea of leasing to take advantage of the $7500 credit. At least if I plan to purchase the vechicle once the lease ends.

Maybe going with an older AP1 CPO vehicle might make more sense and then just plan to upgrade in a few years.

 

[Science fan]

BrettS, the AP1 CPO route sounds most logical to me. Use it well for three to five years, (I find AP1 to be awesome enough for me) THEN buy or lease when AP3 or AP4 comes out.

 

[timvracer]

I went through this same debate with myself, and I ended up choosing to buy (picked it up on Sunday, and wrote one hell of a whopping big check!) I am totally happy with my decision. That said, it is very much a personal thing -- I know i want a Reus audio system (getting it put in this Friday) and I want this to be my car to do what I want with it. I also plan on driving this car for at least 8 years (my last big car purchase was an Audi A6/4.2 sport, and I drove it for 10 years and was happy all the way to the end).

So it depends truly on what you want to do -- I could not imagine paying 60grand over 3 years, knowing that clock was tick tick ticking all the time when I would have to turn it in, and end up at ground zero with nothing to show for it. The up front fees, and residual is brutal given how much Tesla's retain their value -- and unless you really REALLY want to grab the latest and greatest every 3 years, I don't think it is worth it.

Super happy to own my car!

 

[xyeahtony]

While i agree that the tesla is hardly a future proof car, the AP 2.0 hardware is (according to tesla) capable of full self driving (in the future...maybe long future who knows) so as far as i'm concerned thats all the future proofing i really need.

I also didn't lease because just commuting to work alone puts me over 15,000+ miles a year and i do want to take roadtrips.

 

[AMPd]

I bought my first one.
Saw how quickly tesla evolves their cars, decided to lease the second one.
Bought the third one.

 

[bsf29]

We always kept our cars for around 10 years but after years of research and watching how rapid the EV market keeps changing, we leased for the 1st time. We had to do the 15k mile lease because our commute is 80 mile round trip and we plan on using our MS on our normal vacations. We split the mileage between our 2 cars but after 6 weeks, we are finding that we use our MS60 much more than we 1st expected (it is just awesome to drive). I'm already thinking that we have to change our pattern slightly to stay under the 45k mile limit. Our plan is that in 3 years, the technology should settle down and we plan on buying again. Even expecting Tesla to continue a fast pace evolution, the features we want should be proven to where we would be satisfied with keeping it long term again.