Tax credit

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Desertstraw

Well-known member
Joined
Jul 31, 2010
Messages
250
Although Nissan advertises "up to $7,500 credit" for purchasers of the Leaf, most buyers will not get it because they do not pay enough income tax. Here is a simple idea and I welcome criticisms of it. What if you have a person in a high income tax bracket purchase the Leaf and then immediately resell it to you? If the person is not a relative or close friend, you could pay him $500 for the help and both will come out ahead. Will this affect the warranty or reservation for early buyers? It seems grossly unfair that under the tax code, rich people can buy the Leaf for less than the rest of us.
 
Most buyers? Rich people? You only need to be into a low six figure household income with a few tax deductions (kids and mortgage interest) to have a tax liability equal to the Leaf tax credit. Less if you're single, childless, and rent! Now I do realize that not everyone makes six figures between two partners, but I hardly doubt it's that unusual or makes those who do (feel) rich!

That said, I don't see anything in the tax code that would disallow someone from buying the car new, taking the tax credit, and flipping it. Altruistically selling it to you cheaper, or even at a nice profit to someone so desperate to get one now rather than later that they don't care about the tax credit!
 
In 2005 before the crash:
$100,000 or more (15.73%) 2 3
$100,000 to $149,999 11,194 9.89%
$150,000 to $199,999 3,595 3.17%
$200,000 to $249,999 1,325 1.17%
$250,000 and above 1,699 1.50%

A lot of people buy cars who are not in the upper 15.73%.

Is a gift from the government geared to the top group fair? "Rich" is in the eye of the beholder. From the census: Median household income, 2008 $52,029
 
My first response is that if the tax credit is a concern, then that person would be smart to take advantage of a Leaf lease, since the federal tax credit will be included in the Lease price (courtesy of Nissan).

But digging deeper into the issue of a Leaf purchase...

I was interested in finding the amount of federal tax that people actually pay, so here is what I found on the taxfoundation.org website...

http://www.taxfoundation.org/news/show/250.html

Table 8:

Year 2007: Total avg tax rate 12.68%

In average terms, that means an average household with an income of $59,148 would have a tax liability of $7,500. Granted, using averages sometimes can be misleading, so look at the last two columns in the table. The top 50% of taxpayers pay an average of 14.03%, and the bottom 50% pay 2.99%.

At least the top 50% of taxpayers (and probably more) at or around the 14.03% rate should be able to get back a decent amount of the tax credit, if not all.

As far as the bottom 50%, they certainly pay less taxes. But the honest question that I have to ask, with no disrespect intended, is whether a person or family that has a lower income at the bottom of the tax tables would be able to afford a new car in the price range of the Leaf, tax credit or no tax credit?

A $32K purchase with tax and license is probably closer to $37K out the door. So even with the possibility of a tax credit or state rebate, is still a very sizable purchase for a family that makes $35K or $45K or $55K at the lower tax rates.

If the tax credit is an issue with income / tax rates, the Lease deal is the way to go.
 
Randy said:
In average terms, that means an average household with a taxable income of $59,148 would have a tax liability of $7,500.

Excellent post Randy! The only modification I'd probably make is the insertion of the word taxable. By the time I'm done with pre-tax 401k contributions; paying the mortgage; property taxes; cash donations to church and the couple of charities we support; the assistance my wife makes with raising her one daughter's children (don't ask!); and the small number of State taxes that are deductible (car registrations), our taxable income is quite a ways off our gross.

I do feel blessed compared to some, but not rich by ANY stretch of the imagination. In fact, this is the very first time in my almost 50 years I've even considered buying a new car, and I've not bought a used car previously for more than $10,000. Actually, having never had a car payment before, I'm somewhat stressing over the idea of a $600 one (100% financing @ 2.99% for 60 months), even with the tax breaks and CA incentives to help with it for the first couple of years! :eek:
 
mwalsh said:
Randy said:
In average terms, that means an average household with a taxable income of $59,148 would have a tax liability of $7,500.

Excellent post Randy! The only modification I'd probably make is the insertion of the word taxable.

Not correct. They are actually talking about AGI (adjusted gross income, line 37 in 1040) - not taxable income which comes later after deducting exemptions etc.
 
The lease deal may not be what people think that it is. I called IRS and spoke to their specialist. She said that the $7,500 is for individual taxpayers. As the lease deal was explained to me by somebody on the Nissan line, the dealer who leases the car to you takes the $7,500 credit and then sells the car to you for a lower price at the end of the lease period. At least from what I have been told, this may not be true.
 
Desertstraw said:
The lease deal may not be what people think that it is. I called IRS and spoke to their specialist. She said that the $7,500 is for individual taxpayers. As the lease deal was explained to me by somebody on the Nissan line, the dealer who leases the car to you takes the $7,500 credit and then sells the car to you for a lower price at the end of the lease period. At least from what I have been told, this may not be true.


The tax credit is taken by Nissan at the corporate level and factored into what you're paying for the car.
 
mwalsh said:
Desertstraw said:
The lease deal may not be what people think that it is. I called IRS and spoke to their specialist. She said that the $7,500 is for individual taxpayers. As the lease deal was explained to me by somebody on the Nissan line, the dealer who leases the car to you takes the $7,500 credit and then sells the car to you for a lower price at the end of the lease period. At least from what I have been told, this may not be true.


The tax credit is taken by Nissan at the corporate level and factored into what you're paying for the car.

I would agree with this explanation.

I lease my rooftop solar facility with a purchase option after 6 years to the end of term. The Federal, State as well as the Power Company rebates were signed over to the Solar Company for a reduced monthly lease payment.

Very simple formula and easily fits into my monthly budget.
 
Desertstraw said:
The lease deal may not be what people think that it is. I called IRS and spoke to their specialist. She said that the $7,500 is for individual taxpayers. As the lease deal was explained to me by somebody on the Nissan line, the dealer who leases the car to you takes the $7,500 credit and then sells the car to you for a lower price at the end of the lease period. At least from what I have been told, this may not be true.
And to add to what mwalsh just said: Some advantages of the lease deal are 1] you don't have to wait until you file your individual federal income tax return (possibly up to 21 months later (October) after buying the car in January)), because you get the FULL $7,500 benefit NOW (in the form of a lower "aqcuisition" (not purchase, since it's a lease) price); 2] you don't have to guess now whether your income tax liability will exceed $7,500 so that you can take full advantage of the credit. (Other lease versus purchase pros and cons still apply and are a personal choice. And there's a withholding trick to shorten the 21months time frame.)
 
LEAFerAnd to add to what mwalsh just said: Some advantages of the lease deal are 1 said:
you don't have to wait until you file your individual federal income tax return (possibly up to 21 months later (October) after buying the car in January)), because you get the FULL $7,500 benefit NOW (in the form of a lower "aqcuisition" (not purchase, since it's a lease) price); 2] you don't have to guess now whether your income tax liability will exceed $7,500 so that you can take full advantage of the credit. (Other lease versus purchase pros and cons still apply and are a personal choice. And there's a withholding trick to shorten the 21months time frame.)

Plus, with a lease, you are somewhat protected if the Leaf winds up being nothing more than a niche vehicle with limited resale value. Your lease will have a residual price built in, and there's your protection: If the residual is (just a guess) $16,500 and 3yr Leafs are selling on the street for $20,000 then you're ahead $3,500 should you decide to keep the car. If the resale value is $7,500, then you walk from the lease happily protected from such a small resale price.
 
No one here sounds as if they have been confused about this, but just in case anyone is, the $7500 is limited by the total amount of income tax you pay for the year, not by what you owe at income tax time. For most "ordinary" people, all or nearly all of that is taken out of your paychecks, so you never see it. If you have someone file your income tax report for you, you might not notice it then, either.

Dig up the income tax form that was filed for you last spring and look at the total tax line. That's line 60 if you filed Form 1040; line 37 if you filed 1040A. You may be surprised by how large the number is.

I tend to agree with what others have suggested here. If your number is less than $7500 you are really going out on a limb to buy a new Leaf at this point. You should look very seriously at leasing instead.

P.S. Every rule has exceptions, and one exception here is that if you are a fat cat with lots of tax-sheltered income then your tax accountant may well have managed to push that number below $7500. If that's you, I kinda wish you wouldn't buy a Leaf right now, just so one of the rest of us can get our hands on the one you were going to get, but you can forget that "out on a limb" comment. ;)
 
I do not know the source of information by some posters that you get the $7,500 benefit if you lease. It is not what IRS told me or what appears in this article:
Christian Science Monitor
By Laurent Belsie / July 31, 2010

Those who lease won't benefit from the hefty $7,500 tax credit. But sometimes, when first confronting a brave new world of technological change, it's OK to hedge.

I never wanted to get involved in a dispute about who is rich. My purpose in the original post here was to see if there are any flaws in the idea of having somebody who qualifies for the $7,500 deduction buy a Leaf on my behalf. There may be good reasons for leasing but I do not see cost saving as one of them. Under the announced lease cost, you would have to buy the car for about $11k after three years to match purchasing with the $7,500 tax credit.
 
Desertstraw said:
I do not know the source of information by some posters that you get the $7,500 benefit if you lease. It is not what IRS told me or what appears in this article:
Christian Science Monitor
By Laurent Belsie / July 31, 2010

Those who lease won't benefit from the hefty $7,500 tax credit. But sometimes, when first confronting a brave new world of technological change, it's OK to hedge.

I never wanted to get involved in a dispute about who is rich. My purpose in the original post here was to see if there are any flaws in the idea of having somebody who qualifies for the $7,500 deduction buy a Leaf on my behalf. There may be good reasons for leasing but I do not see cost saving as one of them. Under the announced lease cost, you would have to buy the car for about $11k after three years to match purchasing with the $7,500 tax credit.

Nissan is taking the $7,500 if you lease and it reflects in the lease pricing. You don't do anything tax wise for that $7,500 if you lease.

MRSP for a SL is roughly $33,800. A lease on a $33,800 car would run you around $450/mo. But Nissan is 'taking' that $7,500 deduction so the price of the car is now effectively $26,300, and the lease on a car at THAT price point is something like $350.

The $7,500 is a tax credit for those that pay more than that in federal taxes each year. If you buy a Leaf, you have to work out your taxes and, if you pay more than $7,500 in federal taxes, you'll get that amount as a credit. (or, it'll come back to you in a check, if you don't change your withholding at all). If you LEASE, you 'get' the $7,500 automatically because Nissan gives you that in the form of a price break on the car. The monthly lease price is based on the value of the car, which Nissan is discounting $7,500.

Confused??? :mrgreen:
 
Desertstraw said:
I do not know the source of information by some posters that you get the $7,500 benefit if you lease. It is not what IRS told me or what appears in this article:
Christian Science Monitor
By Laurent Belsie / July 31, 2010

Those who lease won't benefit from the hefty $7,500 tax credit. But sometimes, when first confronting a brave new world of technological change, it's OK to hedge.

Nissan Motor Acceptance Corporation (NMAC) or Nissan-Infiniti LT (NILT) will own the leased vehicles. They will collect the 7.5K tax credit.

But, they have already taken that into account while calculating our monthly lease values i.e. they are using 32.5K-7.5K=25K as the MSRP. So, we get the "benefit" of 7.5K credit even though we don't directly get the credit.

Hope that clears your confusion.
 
So, how does NMAC qualify as an "individual"?

I suspect it does not, but that corporations (like HERTZ, NMAC, etc.) can also get the federal tax credits for their (many) LEAF purchases.
 
Yes, only individuals will get the 7.5K credit is not correct. Businesses & fleet owners will also get the credit - as will the lessor.
 
I checked my tax form from last year and as I thought I would be short of the $7,500. I will also this year have less dividends this year unless the tax credit will end for 2011. That will help but I may try to get money from my 401k I know there is a 10% penalty but I could use it to shore up the home budget and get the full tax credit. I am going to just pay more because I want the car.
 
Desertstraw said:
I do not know the source of information by some posters that you get the $7,500 benefit if you lease. It is not what IRS told me or what appears in this article:
Christian Science Monitor
By Laurent Belsie / July 31, 2010

Those who lease won't benefit from the hefty $7,500 tax credit. But sometimes, when first confronting a brave new world of technological change, it's OK to hedge.

I never wanted to get involved in a dispute about who is rich. My purpose in the original post here was to see if there are any flaws in the idea of having somebody who qualifies for the $7,500 deduction buy a Leaf on my behalf. There may be good reasons for leasing but I do not see cost saving as one of them. Under the announced lease cost, you would have to buy the car for about $11k after three years to match purchasing with the $7,500 tax credit.
News articles sometimes contain errors, as was the case here. The source of the information about the tax credit being incorporated into the lease pricing comes straight from Nissan's website:
Adjusted Net capitalized cost of $25,521 includes $7,500 manufacturer incentive for federal tax credit available to NILT by law
 
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