Beginning on Jan. 1, Illinois residents who lease a vehicle now only will pay taxes on the money due at the lease’s inception and the monthly lease payments rather than the total value of the leased vehicle.
Early this year, Mike Privett took advantage of a change in the taxation of leased vehicles that became effective in 2015.
Being in the car business, Privett, who works at the Naperville Jeep Dodge dealership, said that he goes back and forth on leasing versus purchasing. But on Jan. 2 he chose to lease a Grand Cherokee Overland valued at about $48,000 over purchasing it outright.
Based on the change in the method of calculating taxes on leased vehicles, Privett estimated that he saved about $50 a month on his 39 month lease by waiting until the new year.
Beginning on Jan. 1, people who lease a vehicle now only will pay taxes on the money due at the lease’s inception and the monthly lease payments rather than the total value of the leased vehicle.
Previously, Illinois residents were taxed on the full value of the leased vehicle, even though the consumer was only using the vehicle for a limited time.
Naperville resident John Hennessy and owner of Hennessy’s River View Ford in Oswego made several trips to Springfield to testify before the Illinois Department of Revenue along with other members of the Chicago Automobile Trade Association in an effort to change how leased vehicles were taxed.
He said the group had to state officials that the old tax rules were unfair to the consumer, he said.
“Now, individuals who lease should expect to see a monthly savings of about $30 or $40 a month on a $20,000 to $30,000 leased car,” Hennessy said.
In essence, Chicago Automobile Trade Association president Dave Sloan said, prior to the change if someone decided to lease a $40,000 vehicle for three years they would have been taxed on $40,000 even though the individual was only going to use the vehicle for three years. Also, Sloan said if the person chose to purchase the vehicle at the end of the lease the buyer would have had to pay tax again on the vehicle.
Before Jan. 1, a DuPage County resident who leased a vehicle with a value of $27,000 for 36 months would pay about $1,890 in state taxes. Now that same lease would cost $945 in taxes.
With the average cost of a new vehicle at about $31,000, Sloan said, leasing now is a more attractive option to those who want to have a lower lease payment rather than a lengthy car payment.
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Most nearby states see about 25 percent to 30 percent of all vehicles leased, only about 14percent of Illinois motorists chose to lease their vehicles and the unfavorable taxes on car leases may have been one reason why, Hennessy said. In other parts of the country, such as metropolitan New York and Cleveland, about half of all vehicles are leased.
Local area dealerships are expecting to see larger numbers of those in the hunt for a new vehicle to choose leasing over purchasing.
As car loans have extended, Hennessy noted that it is not uncommon to see loans up to seven years in length.
Consumers may look toward leasing rather than having a car loan that looks more like a “mortgage payment,” he added. Also the favorable warranty agreements that now come with leases may tip car consumers to the leasing option.
Back in the 1970s and 1980s, leasing was much different, Hennessy said, “Now that has all changed.” However, it may take some time for the mindset of purchasing over leasing to change in Illinois.
Cathy Janek is a freelance reporter