Need 05 vs. 06 Purchase Advice

[lee]

I currently have an order in for an '06 with Navigation for January delivery. I finally made it to the dealer today to choose colors, and get a trade-in estimate for my car.

The first part of the equation is that the dealer will give me $12K for my trade-in on an '06, but $13K for my trade-in on a similarly equipped '05 (assuming they can locate one). So, for this part, buying now would save $1,000. Also, the sticker price is lower for '05 models, so factor in another $500.

I reran TurboTax 2004 factoring in an additional $2000 deduction and it saved me $700 on my bottom line.

Then I tried to enter the tax credit (assuming $3100). If it acts like a Form 8834 Qualified Electric Vehicle Credit, it save me nothing because I paid AMT (Alternative Minimum Tax), and my "tentative minimum tax" was higher than my tax from the tables, so the credit is zeroed out. My AMT was based mostly on the high NY income and property taxes, which aren't going to change, nor is my income going up that much.

So, the bottom line is a savings of $2200 to buy an '05 before Dec. 31st vs. getting a newer car (less depreciation) with a few more bells and whistles (camera, iPod jack) on Jan 1st.

What would you do if you were in my position? I need to decide "right away" so any input would be greatly appreciated.

[Maytrix]

Originally posted by lee@Nov 19 2005, 12:56 PM
What would you do if you were in my position?  I need to decide "right away" so any input would be greatly appreciated.

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It's hard to say, since I already have my 05. I'd probably buy whichever car I wanted. Noone here can make the choice for you as we don't know enough factors. Financial situation..etc. If you really wanted the features of the 06, but the extra savings would make a huge impact in your life, then I'd get the 05. If the extra money makes little difference, then I might go with the 06.

[wrprice]

You've got all the facts lined up... it pretty much comes down to _your_ decision.

How much is the depreciation worth to you -- do you plan to sell/trade your car in a few short years? How much would it cost to add an aftermarket auxilliary input and camera to an '05? How much is having those features from the factory worth to you?

If it all comes out to less than 2200, you might save a little cash and get your enjoyment sooner if you get an '05.

Personally, I'd question why the value of your trade-in varies based on the model year of car you're *buying.* That sounds fishy; either it's worth $12K to them or it's worth $13K -- no "ifs" about it.

[jsf]

You might double check with an accountant to see exactly what the net impact of the tax credit will be in your situation. Running 2004 TurboTax and assuming the effect is similar to Form 8834 may not lead to a correct assumption.

That said, for most people the differences between a 2005 and a 2006 are not significant. If you haven't done so already, go through the 2006 threads to see what the differences are and if they are important to you.

All things equal, a later model year will have higher resale value, but if you keep the car for a few years, any difference will not be significant.

John

[lee]

Originally posted by wrprice@Nov 19 2005, 02:27 PM
You've got all the facts lined up... it pretty much comes down to _your_ decision.

How much is the depreciation worth to you -- do you plan to sell/trade your car in a few short years?  How much would it cost to add an aftermarket auxilliary input and camera to an '05?  How much is having those features from the factory worth to you?

If it all comes out to less than 2200, you might save a little cash and get your enjoyment sooner if you get an '05.

Personally, I'd question why the value of your trade-in varies based on the model year of car you're *buying.*  That sounds fishy; either it's worth $12K to them or it's worth $13K -- no "ifs" about it.

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I usually keep cars for a long time, so the depreciation isn't a big factor. The camera and iPod jack are nice, but I wouldn't spend the price difference between the '05 and '06 to get them. There are several reasons why my trade-in is worth more to them now than in late January. First, the mileage is lower now than it will be then, second the car will be one year older because the year will be 2006 instead of 2005, third the car may be more marketable now before winter kicks in to high gear here in the snow belt. Also, it might just be their way of giving me a $1000 discount on an '05 without calling it that.

The trade-in is subtracted out before sales tax is added, so selling it back to the dealer vs. selling it privately is worth an extra 8% here, which helps compensate for the somehat lower price you get. What is hard to quantify, but cannot be ignored, is the reduced "hassle" of driving one car to the dealer and driving away in the new car instead of marketing and selling the old one. That's definitely worth something.

I can afford the extra $2200 for the '06, no problem, but I don't like to throw money away unnecessarily. In other words, I like to optimize things, and it looks more and more to me that the '05 would be a significant optimization with little downside.

[VaPrius]

I just bought the 05. I thought about waiting for the 06 but didn't seem that much upside. They are basically the same vehicle and the list for the 06 is probably very long already.

[lee]

I just did the calculation a little more carefully, taking into account the increase not only in the base price of a 2006, but also in the price of the NL package vs. the BC package and the slightly higher destination charge. MSRP for 2005 is 21,275 + 5,065 (BC) + 540 (destination) = 26,880. For 2006, the numbers are 21,725 + 580 + 5,730 = 28,035, for a difference of $1155. Adding in the $1000 bigger trade in, $172 less tax because of the lower sticker and higher trade-in, and $700 tax deduction savings (since I get zero benefit from the tax credit), I would save $3027, which is more than 10%.

By not getting the '06 I lose the improved DVD navigation system, smarter airbags, MP3/WMA playback and Aux Input capability, tire pressure monitoring, a backup camera, some styling improvements, and lower initial depreciation.

By getting the '05 I gain cassette playback capability (allowing a cheap cassette adapter to be used for reasonable iPod connectivity) and roadside assistance.

It just doesn't seem like what I gain by getting (and waiting for) an '06 is worth three thousand dollars. That much money would easily pay for a set of four Blizzak snow tires and wheels ($640 delivered from TireRack), the 7 year / 100,000 mile extended warranty ($990), prepaid service for 4 years ($670), and leave plenty of money left over ($700) -- more than enough for an XM radio kit with 6 months of service ($300) and the ViewTech aux input kit ($300). I guess I'm going to go for the '05!

Thanks to everyone who replied for your help!

Lee

[cowboy]

lee - My accountant said that a tax credit comes off the top of your tax bill, and is usually figured out before AMT is figured. He didn't think this law had an exception to that rule.
I am waiting for an 06. I like the leather and the upgraded nav, and am willing to pay a bit more to get those, while the ipod jack and camera are nice too, but if those were the only changes, i wouldn't be waiting.

[geologyrox]

in YOUR situation, i'd get a 2005 tideland, package 4. in a second. you aren't planning on selling it, and you are saving 3k. if you honestly don't care about the added accessories then you've got yourself in a fairly good situation.

If, on the other hand, we're wrong about AMT pretty much all the way through, then you've got a more difficult decision. pending further information, try to get a 2005. you may find the decision has already been made for you.

[lee]

Originally posted by cowboy@Nov 19 2005, 06:09 PM
lee - My accountant said that a tax credit comes off the top of your tax bill, and is usually figured out before AMT is figured. He didn't think this law had an exception to that rule.
...

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You might need a new accountant. Every single thing I've read about the tax credit says that people who pay AMT will not be eligible for it. I can tell you for sure that the Qualified Electric Vehicle Tax credit, for which you use IRS Form 8834, works exactly that way. In fact, most tax credits do not lower tax liability below the AMT level with a few exceptions such as the Child Care tax credit.