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Do you have to pay sales tax when you lease a buyout? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive tools and financial calculators as well as publishing impartial and original content, by enabling users to conduct studies and analyze data for no cost to help you make financial decisions with confidence. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are advertised on this site are from companies that pay us. This compensation may impact how and where products appear on this website, for example the sequence in which they be listed within the categories of listing, except where prohibited by law. This applies to our mortgage or home equity, and also other products for home loans. This compensation, however, does not influence the content we publish or the reviews you see on this site. We do not cover the vast array of companies or financial deals that could be available to you.

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4 min read Published 24 January 2023

Written by Dan Miller Written by Points and Miles Expert Contributor

Dan Miller is a former contributing writer for Bankrate. Dan covered loans as well as home equity and debt management in his writing.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping their readers to manage their finances by providing concise, well-studied information that breaks down complex subjects into digestible pieces.

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Sales tax is a part of buying and leasing cars in states that charge it. Similar to any purchase and lease, the rules for when and how much you’ll pay when you lease the car differ by state. If you buy your leased car at the end of your lease, you may also have to pay sales tax as a part of the purchase. Do you pay sales tax for a lease buyout?

The possibility of paying sales tax on a lease purchase is contingent on the state where the purchase was made and the lease’s terms. It’s likely that the state you reside in has already included the tax in your .

What is a lease buyout? A , which usually occurs at the expiration of your lease is when you choose to keep your leased car rather than return it to the dealer. When you purchase your lease, you’ll pay the remaining value of the vehicle — the remaining value at the lease’s end — plus any taxes or fees applicable. Not all leases allow for an option to buy out the lease, therefore of the lease you’re on. What is the sales tax applicable to my lease buyout? Based on the state you live in and the lease terms, you may have already paid all of the tax required for sales. In the simplest case it is likely that you’ve already paid some sales tax on the car, so it’s likely that you will have to pay tax on the complete original price of the car you leased. A majority of states include the sales tax into the monthly payments of the lease agreement, though a few states require that all taxes for the entire lease payments be paid in advance. In a couple of states, like Texas, lessees must contribute sales tax on entire value of the vehicle they have leased as opposed to just the tax they pay on payments during the lease. How do I calculate the sales tax for the lease purchase? Before you calculate the sales tax due on the lease purchase you’ll have to calculate determine the residual value of your car. The lease payment is determined in part by the difference between the car’s original value and residual. The best way to calculate the sales tax on the lease purchase is to look at the original lease documents which will contain details of the tax rates. Contact your local Department of Motor Vehicles or go to its website to find out the method of calculating sales tax for leased vehicles in your state. You will then know the amount of tax on sales when you take the lease. If you’d prefer an exact idea of what you may be paying for tax, you might want to speak with a tax expert. When should I consider buying a lease? There are a few things to consider when determining whether it is a good idea to consider a lease buyout. First, check whether the car has value at or near as much as the payoff amount. If it’s not, that’s likely to be a sign that the lease buyout isn’t an option worth considering. Another aspect to take into consideration is the time at which the lease expires term of your lease. If you’ve exceeded the mileage limit or your car has an excessive amount of wear, then you may get hit with additional fees when you trade your vehicle into. Based on the price the charges will be, it might be beneficial to consider an agreement to buy out your lease. The main thing to consider is whether or not to buy the lease car is based on a variety of aspects. Being aware of whether you need to pay sales tax and in what amount to pay when you purchase your leased car will help you determine if it makes sense for you. The laws vary from state to state and therefore, make sure you look over your lease agreement and your local Department of Motor Vehicles for the sales tax regulations where you live. Be aware that you are able to trade in a leased car or do an option to buy out the vehicle you lease at any franchised dealer who has your name on it. If you’re not comfortable working with the dealer you originally leased the car through, just take your business to another dealer. Most frequently asked questions Can you finance the purchase of a lease? Yes. If you’re thinking of taking over your lease, however you require an loan in order to afford it, you could make an application for a lease buyout loan that is offered by a range of different lenders.

Do you need to make a down payment when buying or selling your lease? Although making a down payment when buying out your lease isn’t required, it can decrease your monthly payment and help you save cash in the long run.

What are the rates for lease buyouts? Like auto loan rates rate, lease buyout rates differ depending on the lender and are based on many aspects. Review current rates to determine the APR you can expect.

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The article was written by Points and Miles’ Expert Contributor

Dan Miller is a former contributor to Bankrate. Dan covered loans as well as home equity and debt management in his work.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down complex topics into manageable bites.

Auto loans editor

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