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Discussion Starter · #1 ·
Hi all, I’m a bit torn about which way to go about this purchase. I’m used to having dealers compete for my business and selling prices being at least 10-15% below msrp before incentives are applied. Unfortunately, times have changed. I’ve got a lease that ends in December and I’m definitely not keeping the car. I can get out of the lease with positive equity which is why I’m thinking of leaving 6 months early.

My current plan is use Costco pricing (which is the only way to get a guaranteed discount) unfortunately only one dealer in my area is participating.

On top of all this, I’m torn between leasing and buying :
- I’d like to buy/lease a hybrid Pacifica pinnacle and currently live in Illinois. If I buy it, I won’t get the $7500 credit due to the way taxes will work out for me in 2021 (more like 2500).

- if I lease it, I’ll get the 7500 credit but will pay roughly 4.49% in interest (based on the MF).

My plan is to buy the Pacifica, either lease buyout or finance the purchase in the beginning (plus the extended warranty (because Chrysler).

My questions:
1.) Can I do a lease, get the 7500 applied to the lease, and then do a lease buyout 2 or 3 months in? I’m thinking that I can do a PenFed used car loan which will be cheaper than 4.49

2.) what’s the best % below invoice that I can expect in this current market for this vehicle?

3.) does it make sense to wait it out till November or just bite the bullet and order now while the books are still open for 2021?

Thanks in advance for any helpful advice offered. This would be the most complicated deal I’ve done so looking to see angles that I hadn’t considered before. Thanks again!
 

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If you can’t afford it to purchase leasing isn’t the way to go . You will get the tax break but have a ridiculous lease rate . You best to take the tab break and any incentives and a low interest rate . A buy out at the end of the lease will really make the backend cost of super expensive . And trying to find a pinnacle , nevemind negotiating on one , is going to like pulling teeth . This shortage of chips will be lasting till at least calendar year 2022
 

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Discussion Starter · #3 ·
I can definitely afford to purchase it, it’s more the thought that I’m leaving some of that 7500 tax credit on the table due to the way taxes will work out for 2021. The plan was to do a lease buyout in 3 or 4 months, that way I get the 7500, plus lease incentives and then the lower rate from PenFed.
If you can’t afford it to purchase leasing isn’t the way to go . You will get the tax break but have a ridiculous lease rate . You best to take the tab break and any incentives and a low interest rate . A buy out at the end of the lease will really make the backend cost of super expensive . And trying to find a pinnacle , nevemind negotiating on one , is going to like pulling teeth . This shortage of chips will be lasting till at least calendar year 2022
 

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1.) Can I do a lease, get the 7500 applied to the lease, and then do a lease buyout 2 or 3 months in? I’m thinking that I can do a PenFed used car loan which will be cheaper than 4.49
nononono. Check it out. You can lease the car and then, the next day, have Penfed refinance the car for you--at new car rates, just like a new car purchase. I think they'll do that for current and previous model years.

Get the lease going and into their system, then call or go online and get a payoff amount. Hand that amount to Penfed. Get the Penfed new car purchase rate (1.99% when I looked last month). Voila. You benefit from the $7500 tax credit, and you get the financing you like.

Kia does this with their Stinger. Lease incentives are massive, while buying incentives are miserable. There's been years of forum threads about this, with strategies dissected to maximize it all.

I love Penfed as a way to do this. But other companies may do it better for you, who knows.
 
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If you can’t afford it to purchase leasing isn’t the way to go . You will get the tax break but have a ridiculous lease rate .
But you aren't stuck with that. You simply refinance it at new car rates, and get away from that lease.

Done every day.
 
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I can definitely afford to purchase it, it’s more the thought that I’m leaving some of that 7500 tax credit on the table due to the way taxes will work out for 2021. The plan was to do a lease buyout in 3 or 4 months, that way I get the 7500, plus lease incentives and then the lower rate from PenFed.
You could also consider IRA to Roth to raise your income level as well to qualify for the full $7500 tax credit if that's a option.
Sadly the best is probably affiliate rewards (if you qualify) which is 1% under invoice, if the dealer is willing to take it.
 

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You could also consider IRA to Roth to raise your income level as well to qualify for the full $7500 tax credit if that's a option.
And that's a triple win in my book.
 

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nononono. Check it out. You can lease the car and then, the next day, have Penfed refinance the car for you--at new car rates, just like a new car purchase. I think they'll do that for current and previous model years.

Get the lease going and into their system, then call or go online and get a payoff amount. Hand that amount to Penfed. Get the Penfed new car purchase rate (1.99% when I looked last month). Voila. You benefit from the $7500 tax credit, and you get the financing you like.

Kia does this with their Stinger. Lease incentives are massive, while buying incentives are miserable. There's been years of forum threads about this, with strategies dissected to maximize it all.

I love Penfed as a way to do this. But other companies may do it better for you, who knows.
That’s what I was hoping to do, thanks for confirming that I could
 

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Sure you can payoff the lease and refinance the car but the cost of doing that will eat up the tax credit. The lease payoff at that point will be WAY more than the negotiated price of the car. Its the residual plus basically all the payments.
 

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No. The final lease price will include the full tax credit. It's an easy way to take the full tax credit if your financial situation precludes doing that on a straight purchase.

By purchasing you can get a credit only up to your final tax obligation or 7500, whichever is LESS. But by leasing, the lease company gets it all up front and gives it to you against the capital cost.

Look at your 2020 tax return. What is your final tax obligation? That would be your credit. Sucks if it's not 7500 or more. Then you'd be leaving Uncle Sam's money on the table.

So by leasing instead of purchasing he takes advantage of the full credit that's included in the lease. He then converts that lease for that final payoff amount back into the financed purchase instrument, at whatever finance rat he can find. He's now out of the lease. He doesn't do anything on this with his taxes at all. The leasing company already took it up front.

Happens all the time. You just need a refinance partner to give you new car rates on the refinance. Penfed does. There are others.
 

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That’s what I was hoping to do, thanks for confirming that I could
Option 2:
You can avoid the lease/refi hassle/cost, if you can afford to purchase with cash but are worried about the tax credit, an IRA to Roth conversion (which raises your income level to whatever threshold you need/want to get to the $7500 tax liability) is probably the most financially effective way of accomplishing this task that can put your money to work in the long term.
 

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Option 2:
You can avoid the lease/refi hassle/cost, if you can afford to purchase with cash but are worried about the tax credit, an IRA to Roth conversion (which raises your income level to whatever threshold you need/want to get to the $7500 tax liability) is probably the most financially effective way of accomplishing this task that can put your money to work in the long term.
Exactly correct, and is the tool I'm going to use.
 
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No. The final lease price will include the full tax credit. It's an easy way to take the full tax credit if your financial situation precludes doing that on a straight purchase.

By purchasing you can get a credit only up to your final tax obligation or 7500, whichever is LESS. But by leasing, the lease company gets it all up front and gives it to you against the capital cost.

Look at your 2020 tax return. What is your final tax obligation? That would be your credit. Sucks if it's not 7500 or more. Then you'd be leaving Uncle Sam's money on the table.

So by leasing instead of purchasing he takes advantage of the full credit that's included in the lease. He then converts that lease for that final payoff amount back into the financed purchase instrument, at whatever finance rat he can find. He's now out of the lease. He doesn't do anything on this with his taxes at all. The leasing company already took it up front.

Happens all the time. You just need a refinance partner to give you new car rates on the refinance. Penfed does. There are others.
Yes the tax credit is factored in but the issue still remains the much higher cost of paying off the lease very early in its inception. Even if the tax credit is factored into the residual he is still paying that residual plus all the remaining payments essentially. Paying off a lease early is not the same as paying off a loan early.

As an example, lets say you buy a $50,000 car that has a residual value of $30,000. You get the $7,500 tax credit, so your cap cost is $42,500. Lets say your payment is $600 a month. If you pay the 36 month lease off after month 1, you owe the residual of $30,000 plus essentially 35 payments of $600, a total of $21,000, meaning your payoff is ~$51,000. So, like I said the whole tax credit is lost and then some.

The only solution here that preserves the credit is to lease it through the term, or to adjust his income so that he can take the credit on a purchase.
 

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but the issue still remains the much higher cost of paying off the lease very early in its inception.
That can be an issue, but it varies state to state.
 

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That can be an issue, but it varies state to state.
It doesn't. The payoffs on leases work the same in every state. The only difference from state to state with leases is how the sales tax is calculated.
 

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which indeed means it varies state to state. Just like I said.

Anyway, it's all just math. Either the math works, or it doesn't.

The $7500 tax credit is meaningful--it's just like extra cash on the hood for people who wouldn't otherwise see the full $7500.

Anyone who's interested in this idea, check out the Kia Stinger forum. Kia puts massive cash on the hood for leases compared to purchase, and many many people have analyzed this to death over the last couple of years. They want to buy, but they want that lease incentive cash.

My point was, the OP doesn't have to worry about refinancing at used car rates. If this is what he wants to do, he can do the math based on new car rates.
 

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The sales taxes vary from state to state, the way the payoff works doesnt vary state to state. The math won't be impacted by the taxes because you're going to pay the sales taxes one way or the other. If you live in a state where you pay taxes all upfront, when you buy the car out you won't owe additional taxes. If you live in a state where you pay a tax on every monthly payment you will have to pay sales taxes on the buyout price when you buy it out. So its the same either way, what varies is just when the taxes are paid. One way or another the state is going to get their sales tax.

It is all just math, but the math here is going to be really hard to make work.
 

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Okay lol

Anyways, my advice is the cheapest way to do it is going to be to buy it upfront and adjust your tax strategy to make sure you can take the whole credit
 

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Anyways, my advice is the cheapest way to do it is going to be to buy it upfront and adjust your tax strategy to make sure you can take the whole credit
Okay lol

His original issue was that he CAN'T adjust his tax strategy, and was looking for an alternative.

Like I said, it's just math. There is no right or wrong. It's just math.

What's important is that he doesn't have to pay used car finance rates if that's the route he takes, for whatever personal reasons.
 
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