Considering Nissan Leaf or Chevy Volt? Leasing May Make More Sense

Chevy Volt & Nissan Leaf

In the next two months the Nissan Leaf and Chevy Volt will officially go on sale, both with $7,500 in federal tax credits that have been heavily advertised and marketed to potential buyers. However, that $7,500 isn’t going to be easy to come by for all buyers. That’s why leasing one of these two cars may be the more accessible option.

If you’re thinking about buying, here’s what you have to keep in mind: To take the full $7,500 tax credit, you must have a tax liability of at least $7,500. For a single person, the minimum gross income needed to reach the $7,500 liability level is $54,680, according to Bob Meighan, VP of TurboTax, the tax software company owned by Intuit.

While that may sound like a lot, the salary is just about right for Leaf and Volt shoppers, according to Credit.com, which says that an individual shouldn’t spend more than 15% of his or her pay (after payroll deductions) on a car payment.

While the Volt’s $40,280 and Leaf’s $32,780 asking prices are significantly higher than the roughly $28,000 average asking price of today’s new cars, leasing may be one way for folks who make less money to go electric.

The salary needed to lease either vehicle is significantly lower than what’s needed when buying one outright because the tax credit is being taken by the leasing agent, not the consumer. To afford a lease, your take home pay after taxes and deductions would need to be at least $27,921 a year for the Leaf and $28,001 a year for the Volt.

Financing either one with a traditional 60-month loan and the prevailing interest rate puts the Leaf in range of folks taking home at least $43,362. For the Volt, that number is $53,282.

Both Nissan and General Motors acknowledge that their EVs aren’t for everyone and are targeted to wealthier, better-educated car shoppers. More than 30 million households meet the minimum salary requirements to claim the full tax credit, according to the U.S. Census Bureau. That’s a big pool to draw from.

The average Leaf purchaser will be a married, affluent college grad in their mid-40s, according to Nissan. Nissan expects the majority of its Leaf buyers to be eligible for the tax credit.

Let’s assume that every single buyer of these two vehicles meet the salary requirements. The tax credit itself still needs dissecting.

What makes a credit different from the last year’s relatively straightforward Cash for Clunkers rebate program is the EV tax credit reduces your tax liability. In other words, if you owe $8,400 to the IRS at the end of this year’s filing, you can use the $7,500 credit to eliminate all but $900 of what’s owed.

Sounds great, but the catch is you have to have a tax liability equal to or greater than the credit to get the whole $7,500. For instance, if you owe only $6,300 in taxes, your credit is only worth that amount; the other $1,200 is lost forever, according to Intuit. If you have no tax liabilities (say, after claiming your mortgage interest and child tax credits) you would get none of the credit.

With the help of Intuit, we were able to determine that a married couple would have to make at least $74,300 after a standard deduction and have no other tax credits or dependents to earn the full $7,500 tax credit. A single tax filer would have to earn at least $54,600; a head of household would need to top $66,300.

Keep in mind that additional dependents, credits or itemized deductions can rapidly raise the income necessary for the full credit.

The decision to buy or lease is usually dependent on how many miles you travel and how much monthly payment you can afford. With new technology-driven vehicles like the Leaf and Volt, leasing becomes more appealing: There’s less risk in case you don’t want to make sacrifices to go electric.


The Small Print

*Each filing situation assumes that there are no dependents, the “standard deduction” is taken and there are no other credits.

*60-month loan monthly payment includes 15% cash down at 6.23% interest (Bankrate.com’s average national rate, as of Nov. 23, 2010.) Loan rate doesn’t include tax credit or sales tax, title or other fees.

*Lease rate includes tax credit; mileage restrictions apply.

*Payments rounded to nearest dollar.

*Net income represents take-home pay after payroll deductions.

*SSA net compensation estimated from federal income taxes as subject to Form W-2.

Comments 

Amuro Ray

EXCELLENT article, Colin and Dave. I've been looking / asking for one for, oh, what, over 3 years now, and none car websites have really dug into this area. Finally!

I would also like to add a couple of comments here, based on my recent discussion with my accountant.

(1) Another important factor - that's in addition to the net income, dependents, etc. - is the type of deduction that you are already claiming. For example, if you have a mortgage! Your accountant (i.e. if you don't use TurboTax or Quickens*, and let THEM use it) will usually have a way to cut thru' loopholes and hidden tax deductions to maximize your savings. As a result, u could have earned over 50K NET, and STILL get a refund check.

(2) I, too, am planning to lease. That $7500 has already incorporated into the lease rate/down payment. However, AND REMEMBER, many states do charge sales tax on the $7500 tax deduction. My lease plan for the LEAF comes up to $366+tax because of the state tax on the tax deduction portion. Simply put it this way, your state "views" the entire (the leasing part) sales price of the vehicle, since the tax deduction is NOT a discount or anything that subtracts the sales price.

*OT here, it's true that TurboTax & Quickens are usually "free," the money u paid to hire an accountant, $500 or sthg depending on ur income, will greatly increase the amount of your tax rebate to the point that the payment of $500 is just a fraction of the extras you can get! This doesn't apply if u know the US tax system inside and well...hey, that's why they spend like 6-7 years in education just to become an accountant!

qdp

It is not worth spending time and money doing business with a habitual pathetic liar. Otherwise just get scamed and pissed off again.

Six

qdp - Huh? Maybe you intended to comment on a different article.

The thing that shocked me about this article is the assumption that 15% of your income should be spent on car payments. This may well be in line with mainstream budgeting, but a person making $55k buying a $40k car, even WITH a $7500 tax credit sounds like spending too much on your car.

Without stating my household income, I would like to point out the alternative. Buying cars with cash (or paying for a substantial percentage up front, 40%+), new or used, does involve waiting and saving up but it removes the wasted money on interest, and it removes the risk of assuming you'll continue to make the same income going forward.

My current daily driver cost $1750. I know this is much less car than most people drive, but I worked hard to find a reliable car at this price point. I expect my next car will be $5000, but buying with cash will leave my monthly income free for travel, saving for retirement, and other more productive uses of my dollars.

I know this is a new car buying site, and my personal budgeting goes against that of most new car buyers, but with the economic instability and high unemployment of the current time, projecting 15% of your net income just for the car payment going forward for years, not including gas, insurance, maintenance, etc., seems like an unreasonable risk for most folks.

solarEV


Nissan Leaf opens a new concept of corporate environmental responsibility.

A company with true environmental responsibility should build solar charging stations in its parking lots, to charge the batteries of EV's (like the Leaf or the Volt) owned by its employees, FOR FREE.

The employee who have a Nissa Leaf or Chevy Volt just arrive in his workplace and park his EV under a solar panel in the parking lot, and during all the day, while he is working, the battery of his car is charging, powered by photovoltaic panels.

The company should provide this service for free to its employees, as demonstration of corporate environmental responsibility.

Six,
There's always something to be said for budgeting below that 15% for sure. However, many automakers are offering 0% or other low financing deals so you're not losing out on interest as much as ten years ago.

Amuro Ray

Dave T., if I may also add that many automakers are offering extremely low financing on their Cert pre-owned vehicles. If I remember correctly, I vaguely saw that Nissan is offering 0.9% and Toyota sthg similar (on 1 of those banner ads). Cert pre-owns may be more expensive than that use cars lot around the corner or a private sales, but they have much better manufacturer warranties, and quite a lot cheaper than new!

OTOH, buying car with cash is NOT really a good approach is your other option is super low interest financing. A relative of mine (working as a top financial planner/VP for a multi-billion company - too bad he's not my dad) explained to me once that no one will give u free money. If someone does (i.e. those interest free financing, or low rate f.), GRAB IT! Put ur money in the bank or investment or whatever for other uses, esp unexpected use. Come the day when u can no longer afford the payment then you can
(1) sell the vehicle (which is what u really MUST do); or
(2) use the cash in ur hand to pay out the remaining amount.
When u have cash on hand, u can decide what to do with ur vehicle; when u don't have cash on hand, and got stuck with the vehicle, u don't have any option (but to sell it) since u can't pay anything using ur vehicle as a payment.

Jay Arnold

As the former owner of a very successful financial planning firm (400+ employees) I can testify that "Six" approach is what will get you to the millionaire's circle. "Amuro Ray" approach will not work the majority of time as that 'cash on hand' oddly finds it way into funding new furniture, a vacation, a bathroom remodel, etc. Then life strikes and guess what you aren't in a position to sell the vehicle as it's value has dropped dramatically (it is a depreciating asset after all) and you are actually in a position where you'll need the vehicle now more than ever.
My former clients, all of whom became multi-millionaires, carried no debt. A few had mortgages but even that was rare. They only took on measured risk that they could control. In other words they lived by similar rules to what 'Six' is doing.

Oscar R

Dave, could you please let me know of any new car deals in which the car does not depreciate? Interest may be lower but new car prices are a whole lot higher. What will will be the FMV of these vehicles in five years? Assuming 0%, how great of a deal is it to buy a $40,000 on an assumed $55,000 salary only to be able to sell it for $16,000 or so in 5 years? You're telling me I'm not losing out? Why on earth would anyone want to put nearly 73% of their pre-tax net worth in a car?

Here's the common sense answer: Unless you have $500,000 in the bank, keep driving your 2004 Honda Accord. A car purchase will not save the environment.

Engineer

The reasons why smart people do not buy Electric or Hybrid cars are: Batteries are expensive, short lived, efficiency isn’t 100 % and the electricity is not free. Going electric you won’t decrease Air Pollution because 50 % of the electricity is produced by burning COAL. By the way a Jetta Diesel, TDI for $23000 makes 40MPG. With a full tank of Chevy Volt, driving non-stop, you make 37MPG, plus $3 or more, the price of electricity you charged 16.0-kW-hr lithium-ion, the hefty 750-pound battery pack.

Jon

Ok so you think I'm not smart but at least I care about the future. I bought a Volt and I'm at least smart enough to know my grandkids won't be driving around trucks and suvs that get 25 mpg because either the price of oil tanked the economy and jobs or hopefully alternatives to gas are cheaper and more affordable. I'm betting they will be, thats why I own a Volt.
FYI, if you understood how the Volt works you'd see that you can commute to work every day and use none or very little gas. My commuting energy costs have dropped by more than 2/3 since owning the Volt 8 months. And its fun to drive too!

Allie

Hey Jon,

Since you drive a Volt I was hoping you might taking this quick survey to let me in on a few of the reasons you chose it! I'm doing research at Temple University and your feedback would be very helpful!!

http://www.surveymonkey.com/s/BPRNKBZ

Thanks!!

I purchased a used, 2011 Nissan Leaf EV and have been keeping a diary / blog about the experience. Come along for the ride! (Start at the bottom and read your way up!) http://EVearlyAdopter.blogspot.com

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