Leasing a car in USA

I am not a leasing expert, but no, I think the only thing we have pre-tax spending is for medical and dependent care. Leasing would be done by you at the dealer for 3 yrs typically. What is your situation? how long will you be here? and welcome to USA.

 

The advantage of leasing is typically a lower monthly payment and lower out-of-pocket costs upfront. Unless you own a business, are self-employed, or use your car for business related purposes and are not reimbursed by your employer, there are no tax advantages for car ownership or leasing. FYI - you can lease a car for 24 months in the US. Some auto manufacturers currently offer great lease deals for 24 month lease terms - not sure if Toyota is one of them though.

 

I'll start off by saying I'm biased against leasing.

There are no advantages to leasing a car. Leasing in the US is the same as renting a car for 2 years or more. It exists to allow wealthy individuals and businesses to drive late model cars with minimum hassle when it comes time to trade-in. It also exists to entice people into higher cost vehicles through the illusion of lower monthly payments.

In most cases, the buyer is better off financially to finance a vehicle even if they were to keep it only two years. When it comes time to sell, they will get a portion of the costs to finance back. There is no free lunch. The cost of the lease is built into the depreciation value plus a generous buffer to ensure the seller comes out ahead at the end of the lease. Add the cost of the lease plus the residual value at end of the lease and it will exceed the purchase price every time. It is designed that way so that:

1. The seller doesn't lose money on the lease.
2. The high residual value encourages the buyer to seek a follow on lease rather than purchase the car.

Apparently a US lease is nothing like an Australian lease, everything is paid for after tax including required maintenance. The car must be returned in pristine condition minus minor wear and tear or fees will be assessed. Leasing a car is like leasing an apartment.

 

Second hand Prius v wagon may be hard to find as they are only on the market a year. Also depreciation is low on Toyotas. You might want to consider used Highlander Hybrid or Prius regular with a roof top box. But I think you are on the right track to buy and then sell when you leave.

 

I think you are on the right track to get a car that is 1-2 years old. Your depreciation will be negligible. I would also look for one that it certified from a Toyota dealer. Then, when you go to sell it, the certification is transferrable and will assist in selling the car.

 

Yeah, relative to Australia and most other countries, our gas here is dirt cheap even when we're whining about it being super-expensive, so there's not always a financial case to be made for a hybrid versus some cheap car that still gets decent gas mileage. Google tells me that $4/gallon gas (it's been in that vicinity recently in California - elsewhere is cheaper) is about AUD$1.05 per liter, for comparison. The highest I've ever seen in the US was in Death Valley, where you're paying for the scarcity (you don't have much choice of where you buy your gas, and it has to be trucked in a long way). It was $5.48/gal for regular, compared to about $3.50-$3.80 elsewhere in the state at the time.

 

lol lots of leasing threads that I feel like I should speak up since this line of reasoning is incorrect.

There are many many advantages for leasing. You can put yourself in a lower tax bracket for one if its for personal use, i dont know much about this since I've never leased personal.

Second (and this is the MOST important reason why people lease BTW), for you entrepreneur/business owners out there such as myself, a car purchase is considered an asset and to get a tax break for business use means manually calculating how much mileage you drive plus depreciation, which doesn't equal very much unless you drive 1 million miles a day. A car lease on the other hand can be considered a business EXPENSE since you dont actually own the car. 100% DEDUCTIBLE! For this reason alone, many high end cars $80k+ are simply leased rather than purchased. Cheap monthly payments AND massive tax breaks? sign me up all day everyday.

With that being said though, the Prius is cheap enough that it probably doesn't warrant to be leased.

 

I'd like to know how you can decrease your tax bracket with a lease rather than a finance. I'm no tax expert but I'm doubtful this is true since you can't write off a car unless it's for business use.

I have no experience with business tax liabilities so I can't speak to that.

I will give an example where leasing is preferable to financing. A person on low income aid for medical insurance or financial assistance will have their vehicle counted as an asset. Therefore they have to lease so that it isn't count as asset and possibly disqualify them. This isn't an advantage for leasing though. This is so the individual can drive late model cars they cannot afford. If they need public assistance, they shouldn't be driving a late model vehicle. For example, my friend used financial aid to pay for her new car. They offered her so much money that she didn't need it all for college.

I just found this article expounding the myths that leasing is bad. It's so terribly that I'm using it to argue my side.
Five Myths About Leasing a Car-Kiplinger
It's whole premise is a 2012 Honda Accord V6 to show a lease is better because the Accord is worth $14k after 3 years at trade-in. A quick look on Craiglist shows zero 2009 Accords at that price. The closest was $16,500 with high miles. Someone reading this will certainly believe saving taxes on leasing makes it a good deal.

 

i had a friend that had parents make millions oversea but 0 income in the states. she ended up getting a forkload of finaid for college too.

 

Other advantages to leasing:

1) You have a built-in buyer for the car at end of lease term at a pre-negotiated price where all the risk is on the side of the lessor. If the car takes a dump in the market and is worth squat at lease end, you can walk away (yes, you're responsible for excess wear and tear but that affects your car's value even if you own it). If the opposite is true and the car is worth $5k more than the residual price, you have the option to buy the car at the residual, sell it and keep the profit or you can buy the car out of the lease at the favorable price and keep it. With a purchase, you take all the resale value risk and have to find your own buyer when it's time to sell.

2) If you buy cars and upgrade every 3 years ... in many states you pay sales tax on the entire purchase price. With a lease, you only pay sales tax on the amount of the monthly payments you make over the course of the lease.

You can always figure the real cost of leasing by treating it as a balloon payment loan (plenty of online calculators will help you with that). Be sure to factor in the acquisition and disposition fees or any other costs attributed to the lease itself. Excess mileage and wear and tear shouldn't be counted because these are costs that you will eventually pay whether leased or not (i.e. a car with high mileage and lots of dents or battered interior is simply worth less). The ballon payment calculator can expose the effective interest rate (vs. money factor) you're paying when all the fees are added in.

 

24 months is one of the standard terms. I'd think shorter terms should be negotiable, but there are also shorter terms available through lease-swapping services, supplied by people who want out of longer terms early without the early termination fees.

Leases here generally come with a fixed mileage allowance. Go over, and you pay an extra per-mile fee that won't be any less painful than the loss of resale value for that distance.

In your situation, advantages to leasing include less upfront cash, a more deterministic and predictable total transportation cost for the term of your stay, and no hassles or risk trying to sell the car at the end.