Model 3 pre order and tax credit ?

[MorrisonHiker]

I have never refinanced a car loan, but I wonder how depreciation plays into the ability to refinance? When you drive any current EV off a lot, it's value immediately goes down by at least 7500 (the tax credit) plus "regular" car depreciation of several thousand. If you didn't put enough down on top of the $7500 to cover that, it might be hard to refinance. With your giant state credit, it's probably not a big deal, but in places that only get the Federal that might be tougher.

Good point. When I first started crunching the numbers, it was based on an X or S purchase but I'd probably follow a similar plan if I get a well optioned 3. I've been waiting a while and have been "making payments" to myself for years by setting aside money for a new car. I'm probably putting close to 40% down so I don't think I'll have to worry about the lower value of the car when refinancing. I guess I'll find out for sure next year when I refinance and let everyone know if it actually worked as I hope it will.

 

[ggies07]

Assuming you're not leasing and you can take the full $7500 credit, correct. Some people use this as a pro-lease argument (the credit often goes towards your down payment, and it allows people with limited tax liability to get the credit that they would otherwise be able to use in a roundabout way). This is why EV's often have low lease rates - there's $7500 baked into the downpayment.


You would have to give Tesla a total of $35,000 (down payment+cash from bank financing). Your loan payment is based on the amount financed, before the tax credit. There are two (mostly) independent transactions here. You are buying a car from Tesla, and financing some of the cost. At a later date, you get $7500 back from the feds. The bank isn't involved in your taxes - that's between you and Uncle Sam.

As an example, assume you put down 3000 on a 35000 car and borrow the rest for 5 years at 2%.

Purchase price:	$35,000
Down payment:	$3,000
Amount financed from bank:	$32,000
Monthly payment (on $32k):	$560.89

Your payment is based on borrowing $32k ($35k-$3k), not $24.5k ($35k-$3k-$7.5k)

Now, if you bought the car in January, you could reduce your withholding by $7500/12 = $625/month, and use that to pay down the principle on the loan (assuming no pre-payment penalty). Your note would be paid off quicker, but you'd still be making payments of $561/month, you just turn your 5 year loan into a ~4 year loan.

You could (in this example) go up to a 6 year loan, get a lower monthly payment, apply the $625/month extra net income to pay down the principle balance, winding up with a ~5 year loan, with the lower payment of the 6 year loan. But figuring that out would require plugging numbers into a spreadsheet to simulate the specific case.

Right, not leasing, buying. We hope to have at least a $10,000 down payment, hopefully a little more. Thanks for more feedback!

- - - Updated - - -

I'm probably putting close to 40% down so I don't think I'll have to worry about the lower value of the car when refinancing.

Nice! and good job.

 

[Monkey]

I know it's kinda been touched on above, but I think a lot of people will be in for a shock when they can't claim most or all of that $7500 tax credit. Many households already maximize their deductions by way of child/ dependency credits, mortgage interest, medical expenses, etc..

While it's nice to mention or promote the tax credits to some extent, I think it's disingenuous and even misleading to advertise them as a line item deduction on the price of a vehicle. All car makers seem to be doing this with their electric and other alternative fuel vehicles that qualify.

So I guess what I'm saying is that you shouldn't count that $7500, plus the whatever tax credit you may get at the state level, before properly figuring your tax liabilities and/ or consulting a tax advisor. Advertising these incentives on the Model S and Model X is a bit different. Far more people in that demographic of ownership will be able to leverage the tax credits than more typical families who are looking to buy a Model 3 to replace their Toyota Corolla.

 

[dhanson865]

I know it's kinda been touched on above, but I think a lot of people will be in for a shock when they can't claim most or all of that $7500 tax credit. Many households already maximize their deductions by way of child/ dependency credits, mortgage interest, medical expenses, etc..

While it's nice to mention or promote the tax credits to some extent, I think it's disingenuous and even misleading to advertise them as a line item deduction on the price of a vehicle. All car makers seem to be doing this with their electric and other alternative fuel vehicles that qualify.

So I guess what I'm saying is that you shouldn't count that $7500, plus the whatever tax credit you may get at the state level, before properly figuring your tax liabilities and/ or consulting a tax advisor. Advertising these incentives on the Model S and Model X is a bit different. Far more people in that demographic of ownership will be able to leverage the tax credits than more typical families who are looking to buy a Model 3 to replace their Toyota Corolla.

+1 to that.

People always ask me "how much you have to make to take the $7500 credit" and the math is so variable there isn't a single answer.

 

[ggies07]

I know it's kinda been touched on above, but I think a lot of people will be in for a shock when they can't claim most or all of that $7500 tax credit. Many households already maximize their deductions by way of child/ dependency credits, mortgage interest, medical expenses, etc..

While it's nice to mention or promote the tax credits to some extent, I think it's disingenuous and even misleading to advertise them as a line item deduction on the price of a vehicle. All car makers seem to be doing this with their electric and other alternative fuel vehicles that qualify.

So I guess what I'm saying is that you shouldn't count that $7500, plus the whatever tax credit you may get at the state level, before properly figuring your tax liabilities and/ or consulting a tax advisor. Advertising these incentives on the Model S and Model X is a bit different. Far more people in that demographic of ownership will be able to leverage the tax credits than more typical families who are looking to buy a Model 3 to replace their Toyota Corolla.

Yeah, which is what I am learning. Better to figure this out now and save as much as I can than to be shocked when it's time to build the car. I guess they can get away with it like tja said, through leasing. My round trip from home to work is too many miles per year to go that route though.

 

[tga]

There are also things you can do to increase you tax liability during the current year - delay deductible expenses from Dec to Jan (charitable contributions, real estate tax payments, mortgage payments, major medical bills, etc). I think others have mentioned doing a conversion from a traditional to Roth IRA, which triggers some amount of tax penalty.

Check with a CPA...

 

[Ryan H]

I've been telling people to look at their 1040 from last year. Assuming things haven't changed much for them, it at least gives a ballpark figure as to their tax liability.

 

[miimura]

If there is any chance you don't have enough tax liability to get the full $7,500 tax credit, then leasing is the answer. The leasing company should be passing through the tax credit as a "Cap Reduction" in the lease. That directly reduces your monthly payment by the amount of the tax credit over the term of the lease.

 

[Bimbels]

Seems many are concerned about getting the tax credit - is it worth it to write our senators and ask for the 200k ceiling to be raised? Or too far out to bother?

 

[Big-T]

Seems many are concerned about getting the tax credit - is it worth it to write our senators and ask for the 200k ceiling to be raised? Or too far out to bother?

Can't hurt.

 

[Twiglett]

If there is any chance you don't have enough tax liability to get the full $7,500 tax credit, then leasing is the answer. The leasing company should be passing through the tax credit as a "Cap Reduction" in the lease. That directly reduces your monthly payment by the amount of the tax credit over the term of the lease.

Do Tesla to that with their leases?

 

[dgpcolorado]

If there is any chance you don't have enough tax liability to get the full $7,500 tax credit, then leasing is the answer. The leasing company should be passing through the tax credit as a "Cap Reduction" in the lease. That directly reduces your monthly payment by the amount of the tax credit over the term of the lease.

Do Tesla to that with their leases?

Something like that: Tesla adds the $7500 tax credit to the residual value of the car, thus reducing the amount that is financed by the lease.

For example:

Suppose a $40k cost of car. Tesla might figure that the car will be worth $22k — the residual value — in three years, meaning that the remaining $18k, less the deposit paid at leasing, is paid for by the lease plus interest (currently 4% for Tesla leases), spread over three years. There are also some lease related fees added to the total.

With the $7500 tax credit, the residual value of 22k would be increased to $29.5k so the amount financed by the lease would be $10,500, less the deposit paid upfront. As you can see, that would drastically lower the lease payments for the car. (But, as I understand it, you could still buy the car for the residual value plus another small fee, at lease end.)

If you would like to look at the current Tesla lease agreement you can download the pdf here:

http://sabercathost.com/4b7/US_Tesla_Leasing_Highlights.pdf


Some people advise keeping the down payment on a leased car as low as possible. If you crash it your insurance will pay off the lease but you won't get any of your down payment back. FWIW.

Clear as mud, right?!

 

[Twiglett]

Something like that: Tesla adds the $7500 tax credit to the residual value of the car, thus reducing the amount that is financed by the lease.

For example:

Suppose a $40k cost of car. Tesla might figure that the car will be worth $22k — the residual value — in three years, meaning that the remaining $18k, less the deposit paid at leasing, is paid for by the lease plus interest (currently 4% for Tesla leases), spread over three years. There are also some lease related fees added to the total.

With the $7500 tax credit, the residual value of 22k would be increased to $29.5k so the amount financed by the lease would be $10,500, less the deposit paid upfront. As you can see, that would drastically lower the lease payments for the car. (But, as I understand it, you could still buy the car for the residual value plus another small fee, at lease end.)

If you would like to look at the current Tesla lease agreement you can download the pdf here:

http://sabercathost.com/4b7/US_Tesla_Leasing_Highlights.pdf


Some people advise keeping the down payment on a leased car as low as possible. If you crash it your insurance will pay off the lease but you won't get any of your down payment back. FWIW.

Clear as mud, right?!

Thanks for the explanation, makes way more sense that 90% of my posts

 

[S3XY]

I have never refinanced a car loan, but I wonder how depreciation plays into the ability to refinance? When you drive any current EV off a lot, it's value immediately goes down by at least 7500 (the tax credit) plus "regular" car depreciation of several thousand. If you didn't put enough down on top of the $7500 to cover that, it might be hard to refinance. With your giant state credit, it's probably not a big deal, but in places that only get the Federal that might be tougher.

The other thing to consider is that when you refinance, the car will then be classified as used. Loan rates are higher for used cars than for new.

 

[tga]

The other thing to consider is that when you refinance, the car will then be classified as used. Loan rates are higher for used cars than for new.

Not always. Many credit unions (including DCU) have the same rates for new and used.

 

[Nomad]

Do we have any indication that Tesla will lease Model 3 to early reservation holders? I intend to be in line at the store on March 31st. I haven't yet decided whether to lease or purchase the Model 3. I'm leaning toward lease because I expect the car's features and reliability to improve substantially between 2017 and 2020. However, if leasing pushes back my acquisition date substantially, I'll opt to purchase instead.

 

[dhanson865]

Do we have any indication that Tesla will lease Model 3 to early reservation holders? I intend to be in line at the store on March 31st. I haven't yet decided whether to lease or purchase the Model 3. I'm leaning toward lease because I expect the car's features and reliability to improve substantially between 2017 and 2020. However, if leasing pushes back my acquisition date substantially, I'll opt to purchase instead.

I'm under the impression TSLA doesn't care if you lease or purchase so long as money is paid for the car they don't care how you finance it.

 

[bigbear]

I'm under the impression TSLA doesn't care if you lease or purchase so long as money is paid for the car they don't care how you finance it.

So, let's say my tesla will be $40k after options, taxes, ect. If I lease, I'll get to finance $32.5k. Let's say my payment is $500/month for 3 years. Will I owe $32.5k - $18k (3 years of payments) once my three years are up or just turn the car in? I'm so confused.

 

[MP3Mike]

So, let's say my tesla will be $40k after options, taxes, ect. If I lease, I'll get to finance $32.5k. Let's say my payment is $500/month for 3 years. Will I owe $32.5k - $18k (3 years of payments) once my three years are up or just turn the car in? I'm so confused.

Depends on the terms of your lease, but it is more complicated than that. If they increase the residual value, which is what I think people said the Tesla lease does, by the $7,500 tax credit then you would end up paying that $7,500 at the end if you opt to keep the car. (So $32.5k - $18k + $7.5k) Also, highly unlikely that you can do a $0 down lease. (No the $7,500 doesn't count as your down payment.)

The lease that someone link to says "Residual Value 52 - 63% depending on model/equipment/mileage (industry standard residuals + $7,500)" So you get no benefit from the tax credit if you buy the car at the end.

The more complicated part is that normally the residual value calculation is a formula based on percentages on base price and option prices...

 

[bigbear]

Depends on the terms of your lease, but it is more complicated than that. If they increase the residual value, which is what I think people said the Tesla lease does, by the $7,500 tax credit then you would end up paying that $7,500 at the end if you opt to keep the car. (So $32.5k - $18k + $7.5k) Also, highly unlikely that you can do a $0 down lease. (No the $7,500 doesn't count as your down payment.)

The lease that someone link to says "Residual Value 52 - 63% depending on model/equipment/mileage (industry standard residuals + $7,500)" So you get no benefit from the tax credit if you buy the car at the end.

The more complicated part is that normally the residual value calculation is a formula based on percentages on base price and option prices...

Thanks for the detailed answer. It looks like if I want to own this car, I'm not going to get any help from the tax credit. I'm just not into leases.