Personal Finance

Any tax advantage to trading in a car for a lease?

  • Last Updated:
  • Nov 17th, 2017 4:34 pm
Deal Addict
User avatar
Oct 2, 2006
1717 posts
424 upvotes

Any tax advantage to trading in a car for a lease?

Hey all,

Here is the situation.

I own a car that sells for about 12-14k on the used market. I want to get rid of it and start a lease. I have never leased before. I also want to put $0 down on the lease... so essentially I'll be walking out of the dealership with a cheque for the car (guessing around 8-9k) rather than putting it down on the lease.

We have agreed on the terms of the lease, the only thing we haven't finalized is the trade in value of my car.

My question: in this scenario are there any benefits to selling to the car dealer? Tax benefits etc.? I know that there is a lot less of a hassle just trading it in. But if I feel I'm getting low balled from the dealer, I want to be able to walk away from the trade in part to sell privately. Just want to make sure I'm not missing anything here in terms of benefits.


Thanks!
5 replies
Deal Addict
Jan 20, 2016
2028 posts
1013 upvotes
Houston, TX
Oscar11 wrote: Hey all,

Here is the situation.

I own a car that sells for about 12-14k on the used market. I want to get rid of it and start a lease. I have never leased before. I also want to put $0 down on the lease... so essentially I'll be walking out of the dealership with a cheque for the car (guessing around 8-9k) rather than putting it down on the lease.

We have agreed on the terms of the lease, the only thing we haven't finalized is the trade in value of my car.

My question: in this scenario are there any benefits to selling to the car dealer? Tax benefits etc.? I know that there is a lot less of a hassle just trading it in. But if I feel I'm getting low balled from the dealer, I want to be able to walk away from the trade in part to sell privately. Just want to make sure I'm not missing anything here in terms of benefits.


Thanks!
The difference between downpayment in cash and trade-in is that trade-in reduce car price BEFORE taxes, e.g. you're getting +13% compared to cash downpayment.

In case of lease it's a bit more complicated as you pay taxes only on leased amount, not the whole price, but anyway it should reduce the car price (just the effect would be divided between buyout amount and leased amount)
Make the face great again
Deal Expert
User avatar
Jul 30, 2007
33237 posts
21168 upvotes
Toronto
If you feel the dealer is low balling you, then just sell it privately, factoring in the taxes in your selling price.
Deal Fanatic
Dec 16, 2005
6907 posts
5592 upvotes
Oscar11 wrote: Hey all,

Here is the situation.

I own a car that sells for about 12-14k on the used market. I want to get rid of it and start a lease. I have never leased before. I also want to put $0 down on the lease... so essentially I'll be walking out of the dealership with a cheque for the car (guessing around 8-9k) rather than putting it down on the lease.

We have agreed on the terms of the lease, the only thing we haven't finalized is the trade in value of my car.

My question: in this scenario are there any benefits to selling to the car dealer? Tax benefits etc.? I know that there is a lot less of a hassle just trading it in. But if I feel I'm getting low balled from the dealer, I want to be able to walk away from the trade in part to sell privately. Just want to make sure I'm not missing anything here in terms of benefits.


Thanks!
I assume the dealer is giving you $8-9k for the car? Out of curiosity, what car is it? I work in the industry and depending on the car (carproof? damages? mileage? etc.), it is probably not a low ball.

what are the specifics of the deal?
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
If the dealer cuts you a cheque for your car, the cheque will likely be for the 'trade in value' plus HST. If you're in Ontario and they offer you $10,000 for the trade in, the value to you should be $11,300. Contrast this with selling it privately. You'd have to sell the car for $11,300 privately to match the dealer's $10,000 offer.

It should be the same whether you do it all in one transaction: trading in the car and buying another; or trading in the car separately (and leasing, or buying elsewhere, etc.).
Newbie
Mar 15, 2017
29 posts
11 upvotes
There is no tax savings by trading your car into a dealership and then assuming a new lease.
It's essentially 2 transactions.
First transaction for selling your car to the dealership and they cut you a cheque
Second transaction is for taking on a new lease.

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