New Lease Tax Law Could Save You 50% in Taxes!
Posted by:
Mark Bilek
Thanks to a new Illinois law that takes effect Jan. 1, 2015, state taxes on vehicle leases will be reduced up to 50 percent, allowing consumers to get more car for less money. House Bill 2317, signed by Gov. Quinn in May 2014, alters the way taxes are collected on light-vehicle leases. Prior to Jan. 1, a leasing customer paid tax on the entire purchase price of the vehicle. After Jan. 1, customers intending to lease a new vehicle will pay taxes only on money due at lease inception and monthly lease payments. Because most vehicles have a residual value of 50 percent or more, this change reduces the taxes owed by new lessees by 50 percent.
Prior to Jan. 1, a DuPage County resident leasing a $27,000 vehicle for 36 months with no money down would expect to pay about $1,890 in state taxes. After Jan.1, that same customer would pay just $945 in taxes – assuming the vehicle had a residual value of 50 percent. That’s a savings of $945, amounting to more than $25 per month. The savings get even greater on 24-month leases or more expensive vehicles. For example, a DuPage County resident leasing a $60,000 vehicle for 24 months with a 65-percent residual prior to Jan. 1 would pay $4,200. After Jan.1, that same customer would pay $1,470 in taxes, saving $2,730 in taxes over two years.
Nationally, the number of new-vehicle owners that are leasing has grown to 26 percent – a figure that has doubled over the last five years. Illinois has lagged well behind at just 14 percent. Leasing rates in Chicago are among the lowest for any metro market in the United States. By comparison, New York metro has a lease rate of 50 percent and Cleveland, 48 percent. The change in the way vehicle leases are taxed in Illinois should make leasing a much more attractive option for new-car shoppers.
While many assume new vehicle leasing is reserved just for luxury brands, a list of the top 10 models leased in the United States renders that assertion false. According to Experian Information Solutions, each of the top 10 lease vehicles has a starting M.S.R.P below than $25,000. In addition, compared to buying, leasing can lower the monthly payment by $100 or more.
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