[mjr24]

Question....I am thinking of getting out of my X5M lease. I just got into it 2-3 months ago but don't love the car.

I know BMW banned third-party buyouts. Let's say a BMW dealer wants to buy my car but they have nothing I want in trade. I am thinking of having them cut me a check. Do they then payoff my lease with BMWFS directly? Or do I have to payoff BMWFS first before I can sell them the car?

My biggest question is, assuming the dealer can pay BMWFS directly.....do I still have to pay the sales tax on how much was owed on the car? My payoff is like $114k (sales tax here is 5.6 percent)....so we are talking $6k or so. Would the dealer have to pay the sales tax (I assume no since they are re-sellers obviously).

Point being is....if a dealer offers me $117k...I would rather them be able to pay BMWFS direct if I don't have to pay sales tax as I then pocket $3000......whereas if I have to pay off BMWFS myself....I lose $3k overall because I have to pay the $114k payoff and then $6k sales tax...or $120k total.

[Rob_G77]

Originally Posted by mjr24

Question....I am thinking of getting out of my X5M lease. I just got into it 2-3 months ago but don't love the car.

I know BMW banned third-party buyouts. Let's say a BMW dealer wants to buy my car but they have nothing I want in trade. I am thinking of having them cut me a check. Do they then payoff my lease with BMWFS directly? Or do I have to payoff BMWFS first before I can sell them the car?

My biggest question is, assuming the dealer can pay BMWFS directly.....do I still have to pay the sales tax on how much was owed on the car? My payoff is like $114k (sales tax here is 5.6 percent)....so we are talking $6k or so. Would the dealer have to pay the sales tax (I assume no since they are re-sellers obviously).

Point being is....if a dealer offers me $117k...I would rather them be able to pay BMWFS direct if I don't have to pay sales tax as I then pocket $3000......whereas if I have to pay off BMWFS myself....I lose $3k overall because I have to pay the $114k payoff and then $6k sales tax...or $120k total.

You are contractually obligated to pay the full lease amount which includes the sales tax. Since you don't own the vehicle, money is paid directly to BMW FS. Any shortfall for paying off the lease you will have to pay as well.

That's how it is here, but I assume it will be nearly the same for you.

Rob

[Entropy89]

I don't think I've ever seen language in the lease agreements I've had that said I can get out of a lease early without paying exactly what's owed for the duration of the lease.

The dealer would pay off the lease as far as I know. When I turned in my last lease I had 1 payment left that the dealer "took care of" and paid. But I was also purchasing (not leasing) a new bimmer from them so they had somewhat small incentive to make the last payment. If the dealer offers to pay off your car, my thinking is that they would pay BMWFS and give you a check. I think you have to pay tax on that check though, just like you would if you sold the car privately.

Is the tax not figured into your lease payment already though?

[G35POPPEDMYCHERRY]

oh believe me, uncle sam will get his cut

[mjr24]

Originally Posted by Entropy89

I don't think I've ever seen language in the lease agreements I've had that said I can get out of a lease early without paying exactly what's owed for the duration of the lease.

The dealer would pay off the lease as far as I know. When I turned in my last lease I had 1 payment left that the dealer "took care of" and paid. But I was also purchasing (not leasing) a new bimmer from them so they had somewhat small incentive to make the last payment. If the dealer offers to pay off your car, my thinking is that they would pay BMWFS and give you a check. I think you have to pay tax on that check though, just like you would if you sold the car privately.

Is the tax not figured into your lease payment already though?

We are taxed on the monthly amount so it's on each payment I make but obviously wouldn't be paid on the payoff amount.

However if I owed $114k on the car and the dealer paid that off to BMWFS direct and cut me a check for the $4k remaining….would I need to pay tax on the $114k?

[Tyga11]

Originally Posted by mjr24

We are taxed on the monthly amount so it's on each payment I make but obviously wouldn't be paid on the payoff amount.

However if I owed $114k on the car and the dealer paid that off to BMWFS direct and cut me a check for the $4k remaining….would I need to pay tax on the $114k?

No, you don't have to pay tax. You only would have to pay tax for a private sale.

I sold my previous Mercedes to a BMW dealer (which was leased) for exactly this reason. So I wouldn't get taxed

[mzwerner]

Originally Posted by Tyga11

No, you don't have to pay tax. You only would have to pay tax for a private sale.

I sold my previous Mercedes to a BMW dealer (which was leased) for exactly this reason. So I wouldn't get taxed

TYGA is 100% correct.

If a dealer "buys" the lease from you. Neither party pays sales tax. Sales tax is only paid by the end customer, not through the supply chain.


I'm this case the dealer buys the lease from you and pays whatever is negotiated above the lease buyout. The individual who eventually buys the car from the dealer would pay sales tax.

On the other hand if you bought the car as an individual you would be liable for the sales tax as it's a b2c transaction. It doesn't matter if you're going to flip it or not.

[mjr24]

So here's an interesting detail…..can a dealer negotiate with BMWFS to get the payoff lowered? The dealer is trying to tell me they can get my payoff down to 102k from 114k. How is that possible? Or do BMW dealers have smaller payoffs than me or what a third party dealer used to get?

[mjr24]

Originally Posted by mzwerner

TYGA is 100% correct.

If a dealer "buys" the lease from you. Neither party pays sales tax. Sales tax is only paid by the end customer, not through the supply chain.


I'm this case the dealer buys the lease from you and pays whatever is negotiated above the lease buyout. The individual who eventually buys the car from the dealer would pay sales tax.

On the other hand if you bought the car as an individual you would be liable for the sales tax as it's a b2c transaction. It doesn't matter if you're going to flip it or not.

So how about this…. is the smarter thing to do…. is have the dealer give me $118k in trade so I can use that towards the new car and not pay sales tax on that? As opposed to them cutting me a check for $118k and then I have to pay sales tax on new car.

[mzwerner]

Originally Posted by mjr24

So how about this…. is the smarter thing to do…. is have the dealer give me $118k in trade so I can use that towards the new car and not pay sales tax on that? As opposed to them cutting me a check for $118k and then I have to pay sales tax on new car.

That'll work too!

[G30M]

Originally Posted by mjr24

Question....I am thinking of getting out of my X5M lease. I just got into it 2-3 months ago but don't love the car.

I know BMW banned third-party buyouts. Let's say a BMW dealer wants to buy my car but they have nothing I want in trade. I am thinking of having them cut me a check. Do they then payoff my lease with BMWFS directly? Or do I have to payoff BMWFS first before I can sell them the car?

My biggest question is, assuming the dealer can pay BMWFS directly.....do I still have to pay the sales tax on how much was owed on the car? My payoff is like $114k (sales tax here is 5.6 percent)....so we are talking $6k or so. Would the dealer have to pay the sales tax (I assume no since they are re-sellers obviously).

Point being is....if a dealer offers me $117k...I would rather them be able to pay BMWFS direct if I don't have to pay sales tax as I then pocket $3000......whereas if I have to pay off BMWFS myself....I lose $3k overall because I have to pay the $114k payoff and then $6k sales tax...or $120k total.

can you tell us why you don't like the X5M?
too big, heavy and clumsy?

[DanG]

Originally Posted by mjr24

So how about this…. is the smarter thing to do…. is have the dealer give me $118k in trade so I can use that towards the new car and not pay sales tax on that? As opposed to them cutting me a check for $118k and then I have to pay sales tax on new car.

That is the preferred method in Washington state.

Here tax is only on the difference between the new car price and the trade in value.

[BMWCCA1]

Originally Posted by DanG

That is the preferred method in Washington state.

Here tax is only on the difference between the new car price and the trade in value.

I doubt that applies to going from a lease where the tax is in the payment, to another lease or purchase. It does depend on your state. In VA you can buy your own car out of your lease and not pay tax on it, but the total cap cost of your lease is taxed at the beginning, rather than a payment tax.

Did I miss something? What makes you think you have any equity after a couple of lease payments on your car? Has your dealer told you that?

[mjr24]

Originally Posted by BMWCCA1

I doubt that applies to going from a lease where the tax is in the payment, to another lease or purchase. It does depend on your state. In VA you can buy your own car out of your lease and not pay tax on it, but the total cap cost of your lease is taxed at the beginning, rather than a payment tax.

Did I miss something? What makes you think you have any equity after a couple of lease payments on your car? Has your dealer told you that?

Right, but here in Wisconsin and most states....sales tax is not included in the buyout. Well, I have equity....because of the current market. I got 3.5% off the purchase to begin with and have made 3 payments.....

[mjr24]

Originally Posted by G80M4

can you tell us why you don't like the X5M?
too big, heavy and clumsy?

No, it's a great car. For one, we have an X7 already for the kids. Second, I have never had an SUV as my daily driver. Maybe I'm just not used it.....and an SUV will never handle or feel like a M5 or M6. I am actually thinking of getting into a M8.

However, the residual thing is throwing me off. If the dealer is willing to give me $118k....and they just came back today saying how it's great news for me because they were able to negotiate my buyout to $102k....how does that benefit me? I would bet that $102k is for the dealer only....not me. If they are giving me $118k...it doesn't matter whether my buyout is $117k or $50k.....it doesn't advantage me anymore. Correct? I'm confused why he told me that.....and he told me this after they told me they would give me $118k. It's not like they found that out and upped their offer.

Should I almost insist that they put this extra $12k towards the new car in addition to the $118k? I am confused. Basically, if BMW is willing to lower the buyout for the dealer....THEY ARE THE ONES making an extra $12k off my car.

I feel they are trying to possibly pull a fast one....

[jmg]

Originally Posted by G35POPPEDMYCHERRY

oh believe me, uncle sam will get his cut

You will get taxed on the positive equity you report on your taxes, but not the sales tax on the residual price of the car.

For instance, if the BMW dealer buys out your lease and the car appraises for $100k but owe $90k, you will get a check for $10k. You will have to declare that as income and it will be taxed as such. You do not have to pay the sales tax.

For instance, in CA, if you buy out the lease for $90k, then you owe sales tax on the $90k, which is around $6500. You sell it for $100k and you have a net of $3500.

[mjr24]

Originally Posted by jmg

You will get taxed on the positive equity you report on your taxes, but not the sales tax on the residual price of the car.

For instance, if the BMW dealer buys out your lease and the car appraises for $100k but owe $90k, you will get a check for $10k. You will have to declare that as income and it will be taxed as such. You do not have to pay the sales tax.

For instance, in CA, if you buy out the lease for $90k, then you owe sales tax on the $90k, which is around $6500. You sell it for $100k and you have a net of $3500.

Right, it's similar here....which is why I would rather sell to the dealer.
So if they are saying they were "able to get my payoff reduced to $102k" and they offered me $118k.....I am assuming they just cut me a check for $16k, correct?

Obviously...I am assuming they hope I am going to take that $16k profit I made and use it towards the M8 they want to sell me, correct? I guess what throws me is car dealers are not normally so...honest. That's why something seems fishy here. They could have not said anything about this....and basically pocketed $12k off me selling them my car instead of passing that savings to me. Again, it's not like they low balled me on their initial buyout offer...then found out they could get a lower payoff...and THEN emailed me with the $118k offer. Instead, I was instead given the $118k offer right away before they even knew what my payoff was (matter of fact, I never even told them....they obviously must have contacted BMWFS) let alone what they could get it negotiated down to.

Would that $16k technically be "trade-in" towards the M8 to where I would not need to pay sales tax on $16k of the amount?

Also....in terms of income tax...if MSRP was $123k....I get $118k for the car..and I have already paid 3 lease payments of $1700 (or about $123k total with what the dealer is giving me)...wouldn't I technically have broken even on the "value" of the car?

[mjr24]

Wait....I think what is up here. I am a moron. I forgot I put MSD's down on my lease....so BMW has like $12k of my money as MSD's.

Let me guess....if a dealer buys out your lease, you normally forfeit the MSD's, don't you?

[jmg]

Originally Posted by mjr24

Right, it's similar here....which is why I would rather sell to the dealer.
So if they are saying they were "able to get my payoff reduced to $102k" and they offered me $118k.....I am assuming they just cut me a check for $16k, correct?

Obviously...I am assuming they hope I am going to take that $16k profit I made and use it towards the M8 they want to sell me, correct? I guess what throws me is car dealers are not normally so...honest. That's why something seems fishy here. They could have not said anything about this....and basically pocketed $12k off me selling them my car instead of passing that savings to me. Again, it's not like they low balled me on their initial buyout offer...then found out they could get a lower payoff...and THEN emailed me with the $118k offer. Instead, I was instead given the $118k offer right away before they even knew what my payoff was (matter of fact, I never even told them....they obviously must have contacted BMWFS) let alone what they could get it negotiated down to.

Would that $16k technically be "trade-in" towards the M8 to where I would not need to pay sales tax on $16k of the amount?

Also....in terms of income tax...if MSRP was $123k....I get $118k for the car..and I have already paid 3 lease payments of $1700 (or about $123k total with what the dealer is giving me)...wouldn't I technically have broken even on the "value" of the car?

You already paid tax on those lease payments, at least here in CA. You would get taxed only on the check you deposit and declare as income.

The $16k can be used as you wish. They can cut you a check, or you can put it towards your next car. If you use that as a cap reduction, you get taxed as a cap reduction.

When you do a lease return, the dealership doesn't own the car, BWWFS as the lien holder does. If the dealership want the car so they can sell it, they will have to buy it from BMWFS. In this case they are buying out your lease and paying BMWFS the residual. Your residual is clearly stated in your contract. It is rare, especially in this market, to reduce your residual.

What you are saying about your MSDs might be right. From what I know about lease transfers, the new leaser will get the MSDs, not the old leaser. Usually the new leaser has to pay the old leaser their MSDs. I think that's the same case for a dealer lease buyout. I would call BMWFS and verify.

[BMWCCA1]

Too much misinformation here. My head is spinning. Your security deposits will come back to you unless the dealer is using them in your calculation for what your payoff is. You really need to have them put this down on paper for you, or contact BMW FS directly.

[jmg]

Originally Posted by BMWCCA1

Too much misinformation here. My head is spinning. Your security deposits will come back to you unless the dealer is using them in your calculation for what your payoff is. You really need to have them put this down on paper for you, or contact BMW FS directly.

MSDs aren't released until the lease is closed and they usually go to whomever is on the lease at the time it closes. This is because the rates are attached to the lease plan which is reduced by the MSDs. Ideally the dealer pays you the equivalent of the MSDs because they will collect that from BMWFS when they close the lease. This is likely included in the payout. That's how it's handled in lease transfers anyway and my understanding is that this trans son is basically a two step process-lease transfer to the dealer then lease buyout by the dealer. Again, I could be wrong, best to call BMWFS and verify.

[Merami fan]

Originally Posted by mjr24

Wait....I think what is up here. I am a moron. I forgot I put MSD's down on my lease....so BMW has like $12k of my money as MSD's.

Let me guess....if a dealer buys out your lease, you normally forfeit the MSD's, don't you?

For a dealer buyout, MSDs can be applied towards the buyout balance or mailed to you as a check from BMWFS once everything is settled. The dealer should have asked you which option you wanted (no form?).

Dealers can also get incentivized residuals from BMWFS, so that explains the extra $6k. Talk to the dealer and figure out how much you would get in addition to the MSDs.

Whatever the case, take your equity as a check and work out the numbers for the new car separately, if applicable.

Originally Posted by jmg

What you are saying about your MSDs might be right. From what I know about lease transfers, the new leaser will get the MSDs, not the old leaser. Usually the new leaser has to pay the old leaser their MSDs. I think that's the same case for a dealer lease buyout. I would call BMWFS and verify.

See above.