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Lease vs finance

Discussion in 'Model S: Ordering, Production, Delivery' started by EugeneM, Jun 9, 2015.

  1. EugeneM

    EugeneM Member

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    #1 EugeneM, Jun 9, 2015
    Last edited: Jun 9, 2015
    I am sure it's been discussed before so I apologize if I am rehashing the past.

    I am trying to figure out if I want to lease or finance my 70D.

    Ordinarily I'd say finance all the way especially considering the lack of zero down lease options BUT I own a business and can easily write off the lease thus saving a good chunk of the lease payments on taxes. I cannot, as easily, write it off if I buy/finance it.

    I do want to mention that I can pay cash for the car so either way works fine for me but I do want to pay the least and get the most out.

    Now for some numbers:

    1) Finance

    My config comes out to $85200 before the $7500 tax credit and $77700 after.

    Let's assume that I finance 100% or $77000. The initial finance amount would be $85200 but I'd apply the $7500 tax credit to the principe of the loan when I get it next year.

    At 2% interest rate for 72 months my payment would be $1256/mo and I'd end up paying $4500 in interest assuming I apply the $7500 toward the principle in April of 2016.

    That brings the total I pay for the MS over 6 years to $77,700+$4,500 (interest) = $82,200

    This does not take into account that I would need to spend another $4,000 for the extended warranty if I were to buy the car bringing the total to $86,200 in 6 years (not taking into account taxes, etc). After this I'd end up with a 6 year old MS with a 2 years of warranty remaining with probably about 60k miles (based on my driving record)

    There are some advantages to financing such as no mile limit but I am about to turn in a 2012 X5 that I put 26k miles on after 3 years. I don't drive a lot so that's not important to me.

    2) Lease


    My Tesla calculated my lease payments at around $955/mo with 10k miles or $978/mo with 12k. I think I'll go for the 10k option based on my previous leases at least for comparison sake.

    That means that assuming that I keep leasing a Tesla for the next 6 years I'll end up paying $955 x 72mo = $68,760 plus 2 downpayments of $5k each for a total of $78,760 BUT since I own a business I estimate that I can save at lease 30% of these lease payments on my taxes. $68760 x 0.30 = $20,628 over 6 years. Bringing my total spend over the 6 year period to $58,132

    That is a $28,068 out of pocket less than with financing.

    Now it is true that with financing I'll end up with a 6 year old MS which is worth something.

    I am curious to see how well these cars hold their value after 6 years but based on the CPO offerings and considering that Tesla offers a 4 year warranty on CPO cars I don't think there will be a lot of value left in it. I would guess $30k or so is reasonable bringing the total investment over 6 years in a finance scenario to $56,200 or around the same as the lease

    HOWEVER I also value the fact that with leasing I will get to drive whatever tech comes out in 3 years instead of having to drive a 6 year old vehicle. I am not sure how to put a monetary value on that but it is fairly important to me. If I had to guess based on nothing more than a gut feeling I'd say put a $20k over 6 years value on it and that is equivalent to another 2 years of leasing although I am not sure that's a correct way of looking at it.

    Anyway, I am curious to hear your thoughts on the subject.

    A zero down lease would make leasing a no brainer option for me and who knows maybe in a few more years it will become possible making leasing even more attractive..
     
  2. samuel

    samuel Member

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    Tesla has 6 yr leases? I thought it was 3 then purchase or return.

    Edit: Oh, you are comparing 6 yr financing to 2 3-yr lease.
     
  3. EugeneM

    EugeneM Member

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    Sorry if it wasn't clear but yes I am comparing a 6 year finance term with two 3 year back to back leases (including a downpayments of $5k each)
     
  4. Cyclone

    Cyclone Active Member

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    A couple points:
    - CPOs have a 4 year warranty, not two
    - the lease route has 2x acquisition fee and a disposition fee (only one since first would be waived if you get another Tesla)
    - pre-tax writeoffs, you are at $78k + lease fees vs. $82k (after interest)
    - I don't own a business and am not familiar with business writeoffs, but you are guesstimating a 30% write off for the lease. Is there zero write off for the purchase?

    Especially given the third point and how you will have the "latest and greatest" second car, it could be an ok decision to go with the lease. But that really would be because of the tax writeoffs more than anything else.
     
  5. ahurst

    ahurst Member

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    In Colorado, you can still take the state EV tax credit of $6,000 for leased vehicles. So the down payment is effectively less than $1,000 for a Tesla lease.
     
  6. EugeneM

    EugeneM Member

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    - You are correct about the CPO warranty. It was a typo. I meant to say that CPOs with their fairly low prices and long warranties will greatly diminish the private sale values.
    - The acquisition fee is only $695 so not much but yes it is there. Disposition fees are usually waved when another car is leased from the same mfg so I am not even counting them since I am assuming that I will continue to lease Teslas in my calculations.
    - The pre-tax write-off numbers are not applicable to me since I will be writing the lease off.
    - I am being conservative with the 30% figure. Considering my tax brackets it could be as much as 40% but I prefer to stay conservative rather than have to explain why I am writing too much off :).

    I have been getting about 30% back by writing off my leases in the past so its safe to assume the same number here.

    If I finance I can write off the depreciation and/or miles but it's a lot more complicated. I would also be able to write off much less.

    Here's a sample table I found online:

    Depreciation limitations for passenger automobiles (that are not trucks or vans) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies
    Tax year Amount
    1st tax year $10,960
    2nd tax year $4,800
    3rd tax year $2,850
    Each succeeding year $1,775


    They used a $110k car in the example..

    I'd also have to keep a log and records.

    Lease write-offs are much simpler in my experience.
     
  7. Cyclone

    Cyclone Active Member

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    Cool. So let's just call pre-tax outlay between lease and financing almost even. There is something to be said to having a car after all is said and done with. But, let's look at it another way. In six years, would a Tesla bought today be worth roughly $20k? If so, then the lease isn't really a loser in "end up with a car" because you end up with the cash for a car. So, as a business expense, the lease does make sense.
     
  8. Norseman

    Norseman Member

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    I own a business too and write off 50% of the miles driven using the IRA's $0,55 per mile or whatever it is this year.
    Am I missing something? Is there better deals leasing cars?
     
  9. EugeneM

    EugeneM Member

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    Yes, you can write off up to 100% of you lease payments (provided you only use the car for business of course or less if you use it for personal things as well). 50-75% is safe in my experience.

    That means that for every $1k you pay in lease payments you can write off $500-$750 off your taxes. At a 40% tax bracket that's $200-$300 you can get back on your tax return. My lease is approximately $12k/year which means I can get up to $3600 back or 30% :).

    I am oversimplifying the process of course but that's the gist of it. You can definitely write off more and do it easier when leasing vs buying/financing.
     
  10. Norseman

    Norseman Member

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    hmm, okay.
    I only use the car for 1/2 business and half personal, and at 8k miles a year, I claim 4k for business @ $0,55 so roughly $2k per year.
    (got a Chevy Volt, $196 lease payment per month..trade-in was too much of a down-payment, my bad)
    Soo, If I lease a Tesla @ $1k per month and tell the Tax Man it is all business, I could write it off, until the day I get audited:)
     
  11. 78Lion

    78Lion Member

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    If I'm not misreading, your taking the $7500 twice. Once to reduce the amount borrowed and then to reduce the principle owed the following year.
     
  12. EugeneM

    EugeneM Member

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    Never said you should claim 100% unless that is the case. Stay safe!

    - - - Updated - - -

    I am not. The pre-tax credit financed amount is $85200 which is what I'd be financing for a total monthly payment of $1256/mo. The amortization calculator I'm using (bankrate) allows to calculate the total interest after applying a one time additional payment at any specific date. I set it to April of 2016 in the amount of $7500, assuming I apply the entire tax credit to the principle once I get it next year.

    With that in mind my total interest over 6 years is going to come out to $4500 as opposed to a bit over $5k if I don't apply the $7500
     
  13. HankLloydRight

    HankLloydRight Fluxing

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    Just throwing this out there.. the $7500 is a tax credit against your total tax liability for the year. If you're self employed or run your own business, I'm guessing you pay quarterly estimated taxes? At tax time next year, depending on a lot of factors, you may or may not actually "get" $7500 back in actual cash to apply to the loan balance, it's just that you have to pay $7500 less tax in the end (also assuming you have more than $7500 in tax liability). So why bother getting a loan for the entire amount and paying interest on the additional $7500 for a year or so, just get the loan for the reduced amount now (say, make a $7500 down payment because you do have the cash like you said), and not worry about it down the road and also have a lower monthly payment for the duration of the loan?
     
  14. Fiebrudo

    Fiebrudo Member

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    Ran the numbers 100+ times

    The difference I'm getting in total cost of ownership after 3 years between Leasing from Tesla and obtaining a Loan from Tesla with the 3 year "buyback guarantee " is less than $1000, assuming in both situations the car is returned to tesla after 3 years.

    Assuming a P85d price of $115450 (total)
    Tax rate 8%
    Deposit: Loan $11450. Lease $5000
    Extra fees: Loan $0. Lease $700+$300
    Interest rate: Loan 2.15%. Lease 3.84%
    Residual/buyback: Loan $54378. Lease $66380
    Tax credit: Loan $7500. Lease $0

    Questions:
    1. Is my math wrong?
    2. Advantage leasing is being able to return the car, no questions ask even if Tesla is gone, while I am not sure how legally binding is the Tesla buyback guarantee , correct?
    3. Advantage loan is the options of returning the car and walking away (compared to a 3rd party loan), sale the car to 3rd party for more than the meager buyback price (chaching$$$) or keeping it, correct?
    4. Any guesstimates of what the residual value of a 6 year old 90k mile p85d will be?

    thanks
     
  15. EugeneM

    EugeneM Member

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    This is just for comparison sake. In reality it makes no difference to me whether I put down more at closing or add an extra payment to reduce the principe after the tax season.

    - - - Updated - - -

    1) I don't see any obvious issues
    2) Correct. For me personally the lease is more attractive due to the tax benefits. I should say due to the easier, more straightforward tax benefits since you can also deduct mileage and depreciation if you buy the car though it's more complex IMO and not worth it for me.

    I also value the ease of returning the car and always driving a newer vehicle.
    3) Well I am not sure how easy the buyback program is. I would assume that the amount you can get for it in a buyback is pretty low. I also think that a 3rd party/private sale is going to yield very little considering the CPO warranty and prices as well as the inability to buy extended warranty if a car is purchased from anyone other than Tesla according to a recent thread. That greatly reduces the value of the used MS.
    4) I'll take a stab at it. A Mercedes Benz S550 that runs over $100k new seems to be worth anywhere from $22-$33k today 6 year old. I am looking at a 90k mile option for $24k and a 46k mile option for $33k.

    That is 70%+ of value lost in 6 years. Most luxury cars are about the same.
     
  16. Fiebrudo

    Fiebrudo Member

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    If there is no business tax advantage, does anybody, assuming the above, see an advantage of leasing from tesla vs a loan with buyback guarantee from tesla? (I believe the risks of new technology warrants the sacrifice and extra cost compared to the better rates you'll find with a credit union loan without the buyback guarantee )
     
  17. zer0cool

    zer0cool Member

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    #17 zer0cool, Jun 11, 2015
    Last edited: Jun 11, 2015
    Without business tax advantage, Tesla's lease makes no sense... Based on some other numbers another user gave in his 70D lease thread, total lease + initial payments amount to 37.2k for a 81k MSRP 70D. After federal tax refund, the car really is 73.5k, meaning 2 times 3 years leases would result in total lease payment of 1k higher than the total price of a new car. And this is for 10k miles per year.

    So it would only make sense if you feel a Tesla Model S is worth 0 after 6 years. If it's anything more than 0, that's the difference between lease vs buy.

    Where I live (just crosses into SC border), the difference becomes larger due to property taxes. A new 70D will have annual property tax of over 2100 dollars, which will go down each year as the car depreciates (and you pay this tax regardless of whether you buy or lease). So holding onto a Tesla in the 4th to 6th year vs leasing a new car will result in 4000 dollars difference on taxes.

    Since I 1) believe a 6 year Model S is worth > 0 and that 2) want to save 4000 in state property taxes, I will buy instead of lease.
     
  18. EugeneM

    EugeneM Member

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    I agree absolutely. The leases TM offers are not good, not good at all. The $5k downpayment is a deal breaker unless you can do what I do and write off the else payments. In that case they leasing starts to make sense and becomes very attractive, to me at least.
     
  19. Navyguy

    Navyguy Dreamer

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    Can you lease through another bank? how does that work? I thought leases were ONLY through the dealer
     
  20. andrewket

    andrewket 2014 S P85DL, 2016 X P90DL (soon 100)

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    Yes, you can lease cars through other banks. It's just financing.

    And remember, Tesla doesn't have dealers.
     

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