I'm wondering if there are any tax gurus that have a take on this:

I have an S4 wagon that is coming off lease in several months with a pretty attractive residual, close to what I would expect to get as a trade-in. If I buy the car and immediately trade it in, am I still responsible for paying sales tax on the buyout?
Part 2 of this equation: Am I responsible for sales tax on the entire cost of the MINI or just the net cost of the MINI minus the trade-in?

Thanks in advance.

 

In CA you're responsible for the entire cost of the vehicle. You can't "Deduct" your trade as part of the purchase price. I'm not sure about your first question. I'd think that since you're purchasing the car you're responsible for paying sales tax on it whether or not you're trading it in. Someone has to, I doubt the dealership would .

 

Tax in CA is a real PIA - if you and I trade cars - when each of us go to DMV to change the Reg - We BOTH get hit with sales tax - keep the car for a day and swap back - We BOTH pay sales tax again.... and CA says it does NOT have enough $$$ income... BS

 

You owe taxes on the buy out amount. Period. Ask me how I know.

 

If you are going to trade it in at the dealer and not selling it yourself, you could just go to the dealer and ask them to pay off your lease. Your residual has to be very very low though. Don't trust the blue book values on trade in, it seems to be always on the high side. I use edmunds.com and it seems to be more accurate on the trade in values.

 

Thanks for the responses. If I have to pay sales tax on the gross vehicle cost, this wipes out the whole buy and trade in play.

 

I tried doing that. I didn't find out until I was signing the paperwork that the final cost of the car was going to be 32k with tax (Despite the fact that I was trading in a car for 27k). I had purposely NOT sold the car because of the tax benefit, so now I was stuck with 2 cars. Not fun . Ended up selling it back to Infiniti for about 28.5k.

 

why not just sell the car and give the dealer back the predetermined $ amount of the vehicle? In many cases you can make out and end up with a good amount towards your next lease...

 

I've considered this but the $2K+ of sales tax eats away most if not all of the potential profit should I buy and sell it.

 

If it helps.......the sales tax on your new Mini is tax deductible.

 

I did not know that.

Is it a straight deduction or does it depend on the percentage of the miles that are business related?

 

Nothing to do with "business" just a sales tax deduction. My CPA/Accountant takes care of it for me but the link below gives the basics.


Sales Tax

 

Because you live in Cal you get screwed you're going to have to pay taxs on all tranactions

 

Well, sort of. You can deduct your sales tax, but it only makes sense if you itemize and your sales tax expense is greater than your State income tax, which is a less than likely scenario if you make enough to itemize.

 

I mentioned it as it is worth checking into, I'm not the tax expert that is why I have my CPA/Accountant. All I know with a 6 figure income, owning a house....every year that I purchase a new car, the sales tax is taken as a decuction. So take my opinion for what ever you think it is worth.