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Leasing a Car in Austin

We come across ads screaming for our attention in newspapers and on television offering us fabulous lease offers like a ‘Jeep Cherokee for $300 a month’ or a ‘VW Jetta for $180 a month.’ Generally speaking, most shoppers want to lease their car or vehicle of their choice for the lowest possible price. Leasing is popular because when you lease, you can sometimes get ‘more car for less money.’ You only pay for the amount of the car’s value that you use, and since there are newer models hitting the market every other day, you can always go in for the latest models down the line this way.

With lower down payments, monthly payments, and sales tax only on the portion of the car one is financing, leasing is becoming a popular option for people looking for that dream car. One of the disadvantages with leasing is that you don’t actually own the car at the end of the lease. Leasing contracts are also confusing and it is better to consult your financial advisor before negotiating a deal. Added flexibility, lower payments, and tax benefits are some of the factors that are driving consumers towards auto leasing.

Did you know ? Texas laws require the lease company to pay sales tax on the full value of any vehicle they buy from a dealer and then lease back to a consumer. This is quite different from other states where no such tax is charged from the leasing company. Lease companies in Texas therefore pass on the tax bill to the leasing consumer. What this means is that the leasing customer is paying full sales tax just as if he or she was buying the vehicle and not leasing and even though the tax is actually being paid by the customer, they are not credited with having paid the tax. The taxation procedure in Texas is such that you are supposed to pay sales tax on the entire value of the car and not just on the down payment.

As part of leasing contracts, there are lease-end purchase clauses, which enable the leasing customer to buy the vehicle at the end of the lease if they wish to do so. If not, the vehicle is returned to the lease company. Texas laws consider such sale at the end of the lease period to be a separate sale and they are taxed as such.

The complexity of such rules means that you should consult your tax advisor before going in for a leasing arrangement. One can also go through the Motor Vehicle Tax Manual from the Texas Office of the Comptroller.

Beginning January 2006, several models of fuel-efficient ‘hybrid vehicles’ have begun qualifying for federal income tax credits. As of now, the regulations are not clear on leasing agreements. The final reports are expected when IRS releases its detailed guidelines on hybrid vehicles.

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