No lease for M3?

[Snow Drift]

The tax credit is a credit on your TOTAL tax liability, and is not dependent on what you would ordinarily owe or not in April.

If you pay all of your taxes through out the year, and at the end have a bill of $0. No credit. If you overpay taxes, and you get a refund (prepayment, deductions, rebates, etc), then you also don't get to use the credit.

You would have to manually adjust your withholdings, etc to ensure that you underpaid the gov't by at least $7,500 and thus have taxes DUE in April.

For the average American, who doesn't pre-plan for the credit, they won't be able to use it.

Exactly.

It doesn't matter whether I get a "refund check" in April or not, it's just my total tax liability that is offset by $7500 assuming I get the full federal tax credit.

Smart people will just adjust their withholding so that they don't let the .gov get an interest free loan on their money for most of the year.

I don't see how you could owe the gov't $7,500 and then get a refund. If you owe $6,500...they will not issue a check for $1,000 refund. It is a non-refundable credit.

Adjustments: I don't think the average buyer can figure that out or just doesn't want to own the car.

 

[206er]

Adjustments: I don't think the average buyer can figure that out or just doesn't want to own the car.

Who can at this point? I'm seriously considering visiting a CPA after the tax reform blunder becomes law to get help evaluating our tax situation to see how taking the $7,500 credit early would work. One problem we have is that since we're only interested in the base SR model, we have no clue when during the year it will be delivered, even with my day 1, pre-reveal in-store Seattle reservation. Looks like we'll be in the 22% bracket, own our home, 2 kids, student loan interest, etc.

 

[Dynastar]

If you pay all of your taxes through out the year, and at the end have a bill of $0. No credit. If you overpay taxes, and you get a refund (prepayment, deductions, rebates, etc), then you also don't get to use the credit.

You would have to manually adjust your withholdings, etc to ensure that you underpaid the gov't by at least $7,500 and thus have taxes DUE in April.

For the average American, who doesn't pre-plan for the credit, they won't be able to use it.


I don't see how you could owe the gov't $7,500 and then get a refund. If you owe $6,500...they will not issue a check for $1,000 refund. It is a non-refundable credit.

Adjustments: I don't think the average buyer can figure that out or just doesn't want to own the car.

Arg. No, this is not how taxes work, even though lots of people seem to think they do, thus the happiness at getting refunds at tax time.

Let's say you have exactly $7,500 in income tax liability at the end of the year and bought a new Tesla. If you had $7,500 withheld from your paychecks over that same year you'll get all that money back when you file your taxes. If you had $0 withheld from your paycheck you'll get nothing back, as the credit perfectly covers your tax bill.

The only time you won't get the $7,500 full credit is if you have less then $7,500 in tax liability.

Your withholding has no effect on how much of the tax credit you get to use.

 

[Runt8]

Arg. No, this is not how taxes work, even though lots of people seem to think they do, thus the happiness at getting refunds at tax time.

Let's say you have exactly $7,500 in income tax liability at the end of the year and bought a new Tesla. If you had $7,500 withheld from your paychecks over that same year you'll get all that money back when you file your taxes. If you had $0 withheld from your paycheck you'll get nothing back, as the credit perfectly covers your tax bill.

The only time you won't get the $7,500 full credit is if you have less then $7,500 in tax liability.

Your withholding has no effect on how much of the tax credit you get to use.

Many people don't seem to be able to distinguish between liability and the amount they receive or owe when they file their taxes. And many people who are able to make that distinction interchangeably use the word "owe" to mean either liability or the amount in which someone needs to pay when filing, which further confuses the issue. It makes for a very frustrating (and oft-repeated) series of posts addressing what should be a very simple concept.

 

[rxlawdude]

If you pay all of your taxes through out the year, and at the end have a bill of $0. No credit. If you overpay taxes, and you get a refund (prepayment, deductions, rebates, etc), then you also don't get to use the credit.

You would have to manually adjust your withholdings, etc to ensure that you underpaid the gov't by at least $7,500 and thus have taxes DUE in April.

Wow. This is so freaking wrong that I'm compelled to correct this inaccuracy.

If you "overpay taxes and get a refund," it has NOTHING TO DO WITH THE HOW MUCH YOU RECEIVE OF THE $7,500 TAX CREDIT.

The ONLY thing that determines whether you get some or all of the tax credit is the number on line 63 on your 1040 ("this is your total tax"). If it's more than $7,500 you get all of your credit in the form of a refund (or $7,500 PLUS any excess withholding or estimated taxes paid).

If it's less than $7,500 but more than zero, you get a tax credit of your total tax. If it's zero, you get nothing from the credit at all.

And unlike some other credits, you cannot carry over the credit to a subsequent tax year.

Examples:
Your total tax is $10,000. You've had $15,000 withheld from your pay check (or paid $15,000 in estimated taxes). You bought a new EV this year. Your final obligation will be ($10,000 - $15,000 - $7,500), meaning a refund of $12,500.

Your total tax is $5,000. You've had $3,000 withheld from your pay check (or paid $3,000 in estimated taxes). You bought a new EV this year. Your final obligation would seemingly be ($5,000-$3,000-$7,500) or $5,500. But wait. The most you can take of the EV credit is your total tax, meaning your final obligation is ($5,000 - $3,000 - $5,000) meaning a refund of $3,000. While you in theory could have taken $7,500 off your total tax, your total tax was less than that and thus the credit is only $5,000.

Hope this clears up any misinterpretation of the law.

EDIT: dynastar posted while I was making this post. He correctly described how it works.

 

[voip-ninja]

Ah, so they should instead sit out EVs for the time being and ride the bus, subway, or push less safe, less efficient 10 year-old ICE vehicles?

Who said anything about ANY of that? I said that for your typical paycheck to paycheck person an EV is not a viable option for the reasons I mentioned. Someone who is paycheck to paycheck but has a decent job should buy the least expensive reliable transportation they can which would normally be a 3-5 year old Japanese vehicle... pay it off as quickly as they can and then get their financial house in order so they are not paycheck to paycheck.

That is a much higher priority than making you and others like you happy with their decision to go electric because it makes you feel all warm and fuzzy inside.

If you are on such a crusade about it go convince a few otherwise. I recommend you hit up your typical large-chain watering hole slash foodie place (Chili's, etc.) on a Friday night.

Good luck.

 

[run-the-joules]

The ONLY thing that determines whether you get some or all of the tax credit is the number on line 63 on your 1040 ("this is your total tax").

THANK YOU.

It absolutely baffles me how this is still confusing to people. The nuances of taxes are hard, but I didn't think the idea of overall liability vs what was actually paid before filing was so hard.

 

[voip-ninja]

THANK YOU.

It absolutely baffles me how this is still confusing to people. The nuances of taxes are hard, but I didn't think the idea of overall liability vs what was actually paid before filing was so hard.

It's really not that hard to understand but I think it has a lot to do with people typically not understanding what withholding even means.... or why they get a refund at all at the end of the year other than in vague spaghetti monster terms.

While our tax code is very complicated, understanding your tax liability, vs how much the government took out all year, is not, and could be taught easily to high school level people in any home economics class.

 

[Snow Drift]

Hope this clears up any misinterpretation of the law.

EDIT: dynastar posted while I was making this post. He correctly described how it works.

Mother...I apologize to everyone. Taking out a 1040 helped me to understand exactly what you are saying.

I thought the credit was only for taxes due and would not offset previously paid taxes during the year.

 

[run-the-joules]

It's really not that hard to understand but I think it has a lot to do with people typically not understanding what withholding even means.... or why they get a refund at all at the end of the year other than in vague spaghetti monster terms.

While our tax code is very complicated, understanding your tax liability, vs how much the government took out all year, is not, and could be taught easily to high school level people in any home economics class.

Right. I think this is something we as normal human beings should probably work on helping each other with.

 

[run-the-joules]

Mother...I apologize to everyone. Taking out a 1040 helped me to understand exactly what you are saying.

I thought the credit was only for taxes due and would not offset previously paid taxes during the year.

I… whoa. Someone was wrong on the internet and admitted it and apologized. Model 3s have been delivered in 2017. 49ers fans and raiders fans are working together

That's it, the world is ending and I am NOT going to spend the apocalypse at the computer. IT'S TIME TO GET NAKED AND LOOT.

 

[voip-ninja]

I… whoa. Someone was wrong on the internet and admitted it and apologized. Model 3s have been delivered in 2017. 49ers fans and raiders fans are working together

That's it, the world is ending and I am NOT going to spend the apocalypse at the computer. IT'S TIME TO GET NAKED AND LOOT.

You forgot cats and dogs living together.

 

[run-the-joules]

You forgot cats and dogs living together.

That too!

 

[voip-ninja]

Right. I think this is something we as normal human beings should probably work on helping each other with.

Well, I certainly think understanding how your taxes work, how a credit card works, how a loan works is a hell of a lot more important for the average young person to learn about than learning about "gender norms" which they actually DO have a curriculum for in schools now.

 

[Runt8]

Well, I certainly think understanding how your taxes work, how a credit card works, how a loan works is a hell of a lot more important for the average young person to learn about than learning about "gender norms" which they actually DO have a curriculum for in schools now.

My high school had life skills courses that taught students the basics of the tax system - I daresay most of the kids thought it was completely worthless and couldn't even imagine a time where they would need to care about it.

As to learning about gender norms, I'd imagine the people who find it the most worthless are the ones who would benefit from it the most...

 

[internalaudit]

Well, 4 year term leases are pretty uncommon so I think that would be more like 2.5 leases or you could look at it as leasing 3 times for 9 years total.

We can do some napkin math to see how it works out.

Let's say for sake of argument you are able to lease all 3 M3s or similar at $50K with a 55% residual (realistically new car prices go up 1-2% per year but we'll just ignore that for now as it only makes things look worse).

$150,000 X .45 (depreciation) = $67,500.
+ interest, let's be generous and assume you can lease at 5% interest rate = $10,125 in interest paid for the 3 leases.
+ lease acquisition fees, 3 of them, $1000 per = $3,000
+ minimal maintenance.... you can't lease and ignore vehicle service, so you do 3 $500 maintenances on each vehicle = $4500

I won't even get into the possible registration/tax situation for this, let's just say your total cost to lease for 9 years equals

$85,125.

Now let's look at buying the Model 3 and holding it for 9 years.

$50,000 on a 5 year loan @ 3% (auto loans always have lower interest than leases) with nothing down (you're doing something similar to leasing and trying to minimize your up-front out of pocket expense) = $7,500.

9 years you hold the car so you do the maintenance on it, let's say it's $500 per year for 3 years and every 4 years it's $800.... so, 7 $500 maintenances and one $800 maintenance = $4300.

So, you've purchased the car and held it till one year after drive train warranty expires and it costs

$61,800.

What's your lease worth after 9 years?

0

What's your Tesla Model 3 worth after 9 years?

Based on similar luxury cars it would be worth minimum about 25% of what you bought it for, or around $12,500 cash value.

So the difference is $35,835 more to lease and have a new car every 3 years vs. buying and holding for the long haul of 9 years. Will you have $35,835 in maintenance costs outside of warranty for the Model 3 you keep long term? Very little track record so hard to say.

Is $35,835 a lot of money to you? If it's not then I would say lease... or even just purchase the car, see how it goes and flip it every so often before the warranty is up for the newer model.

If $35,835 is a lot of money to you then you would be foolish to lease since there is no manufacturer support, which is needed in order to make leasing a more attractive option.

Leasing pros;

1. Always driving latest newest Tesla technology.
2. Car always under warranty.
3. Little to no concern about battery degradation.
4. Protected against resale value tanking.

Leasing cons;

1. Much more expensive.

Purchase and hold pros;

1. Far more economical.
2. Money saved can be invested so you can pay cash for your next Tesla.

Purchase and hold cons;

1. Maintenance costs/inconvenience.
2. Aging car, squeaks rattles.
3. Missing out on latest technology and safety advances.
4. You're not cool, driving the latest thing all the time.
5. Not protected against your purchase taking a huge resale hit due to recalls, new models, Tesla financial solvency, etc.

I think if you do two four-year leases, it will be almost a wash because after year 4 without factoring an ESA purchase, no way is the cost of ownership going to be pure maintenance on a Tesla. Even a stalwart Canadian has had warranty repair work already on the DU and a few other issues on a CPO he bought.

It's common here in Canada to lease as long as the factory warranty and it does make sense because the less frequent you lease, the less depreciation you have to pay into.

Maintenance on the lease is not required to keep the warranty intact as per Tesla. I think comparing 2 x 4 year leases versus ownership + ESA is better and I'd bet the gap between the two would be so small on year 8 and of course will start increase in year 9 where one has to lease another vehicle only if repair costs stay low on the purchased Tesla. We've got to be kidding that it's going to be a trivial amount with no Right to Repair.

Not sure how your tax credit of $7,500 works but here in Canada we get the same amount over a three or more year lease or when financed/cash purchase.

 

[daniel]

Well, I certainly think understanding how your taxes work, how a credit card works, how a loan works is a hell of a lot more important for the average young person to learn about than learning about "gender norms" which they actually DO have a curriculum for in schools now.

I think there's room in a person's life to learn about both. Financial literacy is very important in a society with a market-based economy and you're pretty much screwed if you don't understand this stuff. Gender issues are questions of human rights, and without understanding this stuff bigotry has fertile ground in which to grow. Let's not make it either-or please.

On the topic of the thread, I have always been of the impression that leasing a car is what you do when you intend to keep a car for a short period and you are willing to pay a bit extra to bypass the hassle of selling it or trading it in. Leasing lets you just forget about the old car when you get the new one. That's been my impression anyway.

 

[voip-ninja]

I think if you do two four-year leases, it will be almost a wash because after year 4 without factoring an ESA purchase, no way is the cost of ownership going to be pure maintenance on a Tesla. Even a stalwart Canadian has had warranty repair work already on the DU and a few other issues on a CPO he bought.

It's common here in Canada to lease as long as the factory warranty and it does make sense because the less frequent you lease, the less depreciation you have to pay into.

Maintenance on the lease is not required to keep the warranty intact as per Tesla. I think comparing 2 x 4 year leases versus ownership + ESA is better and I'd bet the gap between the two would be so small on year 8 and of course will start increase in year 9 where one has to lease another vehicle only if repair costs stay low on the purchased Tesla. We've got to be kidding that it's going to be a trivial amount with no Right to Repair.

Not sure how your tax credit of $7,500 works but here in Canada we get the same amount over a three or more year lease or when financed/cash purchase.

Leasing even without maintenance is going to be a lot more expensive unless Tesla starts direct support.

What do you propose lease depreciation is on a model 3 after 4 years and 50,000 miles?

 

[internalaudit]

Leasing even without maintenance is going to be a lot more expensive unless Tesla starts direct support.

What do you propose lease depreciation is on a model 3 after 4 years and 50,000 miles?

Depreciation is highest in the earliest years so in year 4, it would be at most 15% of MSRP if you left 55% as residual at the end of year 3.

70% value gone is quite reasonable. I would be a taker if the seller purchased ESA and I add that on top of $20k ( $65k x 0.3)

 

[voip-ninja]

Depreciation is highest in the earliest years so in year 4, it would be at most 15% of MSRP if you left 55% as residual at the end of year 3.

Then 60% depreciation over 4 years?

So in 8 years you pay 120% of a new M3 if you do two 4 year leases vs just buying the car outright.

This doesn’t even touch higher lease rent charge (interest) acquisition fees, etc.

Not to mention the car you bought is still worth something in 8 years, the lease is worth zero