Ford Options and $7,500 tax credit

[atlrealtor]

I know with the Ford Options financing, the borrower gets the tax credit. However, I remember it isn’t applied the same as when one purchases outright. How would I count that into my monthly payment calculations? The Ford options calculator only shows a $1,000 Ford credit incentive. I’m getting estimated $497 with $15k down on 36 months. Is the $7,500 credited to my account, lowering my actual monthly payment by $208?

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[macchiaz-o]

The $7,500 is credited towards your federal tax liability. Not Ford's. So you can do as you please with the extra money.

I believe Ford Options is planning to provide you with a one-time option where you can send them your credit and have them apply it to reduce your remaining monthly payments. I'm not sure why someone would elect to do that, though, since there are no prepayment penalties and you could invest the money instead of giving it to Ford to invest.

 

[DBC]

I know with the Ford Options financing, the borrower gets the tax credit. However, I remember it isn’t applied the same as when one purchases outright. How would I count that into my monthly payment calculations? The Ford options calculator only shows a $1,000 Ford credit incentive. I’m getting estimated $497 with $15k down on 36 months. Is the $7,500 credited to my account, lowering my actual monthly payment by $208?

The short answer is "Yes the $7500 is reducing your monthly to $208 but no it is not being credited to your Ford account". In this sense, the best analogy for the tax credit is "cash back" with a delay. Here is why it's a good thing for most people:

For a lease, and Options is essentially a lease, the payments are based on the difference between the purchase price and the residual. This means that payments are lower if the residual is higher. However, if the residual is higher then it will cost more if you decided to keep the vehicle.

Enter the tax credit. The credit gives you a lower residual, which is a good thing if you buy the vehicle, and it reduces the payments by getting you the money early.

Here are three different situations. The first is a high residual lease where the purchase price is $40K and the residual is $25K. Call this HR (for high residual). The second is a low residual with lease cash. Here the purchase price is $40K, the residual is $20K, and there is $5K of lease cash. Call this LRLC (Low low residual lease cash). LRLC will always be better than HR since the payments will be the same but the buyout price will be lower.

The third is a low residual lease with a tax credit In this case the purchase price is $40K, the residual is $20K, and the tax credit is $5K. Call this LRTC (low residual tax credit). There isn't a ton of difference between LRTC and LRLC but LRTC will always be better. Why? Because while you get the lease cash in 36 equal monthly payments, you get the tax credit much sooner. Again not a big deal but still always better.

One difference is that you get the tax credit from the government and it is never reflected in the monthly. That's a good thing -- as mentioned you get the money earlier -- but some people have problems with what are called "mental accounts". They focus on the monthly, can't wrap their heads around the idea that the tax refund is acting to reduce the monthly payment, and hence think that they're paying less in LRLC. They're not but people aren't necessarily logical.

 

[hybrid2bev]

I know with the Ford Options financing, the borrower gets the tax credit. However, I remember it isn’t applied the same as when one purchases outright. How would I count that into my monthly payment calculations? The Ford options calculator only shows a $1,000 Ford credit incentive. I’m getting estimated $497 with $15k down on 36 months. Is the $7,500 credited to my account, lowering my actual monthly payment by $208?

The $7500 tax credit is not applied towards your down payment when you take delivery. You have to apply for the tax credit at a later time, when you file your federal taxes.

As @macchiaz-o said, once you get your tax credit refund then you can choose to apply it towards your account to lower whatever payments you have left or keep it. So your monthly payment until then will not factor in the tax credits.

For example (without doing funny things to you tax withholdings):
If you take delivery in Jan 2021. You would apply for the tax credit in April 2022. So your monthly payment will be higher from Feb 2021 to May 2022, then you can apply the credit to lower your monthly payments from June 2022 to the end of your term.

 

[timbop]

The $7500 tax credit is not applied towards your down payment when you take delivery. You have to apply for the tax credit at a later time, when you file your federal taxes.

As @macchiaz-o said, once you get your tax credit refund then you can choose to apply it towards your account to lower whatever payments you have left or keep it. So your monthly payment until then will not factor in the tax credits.

For example (without doing funny things to you tax withholdings):
If you take delivery in Jan 2021. You would apply for the tax credit in April 2022. So your monthly payment will be higher from Feb 2021 to May 2022, then you can apply the credit to lower your monthly payments from June 2022 to the end of your term.

Ancillary question: what if you only wanted to apply part of the credit, say $3850? Or, in your example say I know I'm getting a $2000 refund on my 2020 taxes, and I wanted to apply that refund in May 2021 to lower my payments instead of waiting until May of 2022 for my $7500 refund?

 

[hybrid2bev]

Ancillary question: what if you only wanted to apply part of the credit, say $3850? Or, in your example say I know I'm getting a $2000 refund on my 2020 taxes, and I wanted to apply that refund in May 2021 to lower my payments instead of waiting until May of 2022 for my $7500 refund?

To recalculate the monthly payments on Options is a manual process (system was not originally designed to accommodate changes post contract). You have to call in to Ford Credit to arrange the recalculation anyway, so I don't see why this would be any different since not everyone qualifies for the full $7500. But I would think they would only do one re-calculation per account, so I wouldn't plan on doing multiple post contract changes.

 

[JTK44]

The short answer is "Yes the $7500 is reducing your monthly to $208 but no it is not being credited to your Ford account". In this sense, the best analogy for the tax credit is "cash back" with a delay. Here is why it's a good thing for most people:

For a lease, and Options is essentially a lease, the payments are based on the difference between the purchase price and the residual. This means that payments are lower if the residual is higher. However, if the residual is higher then it will cost more if you decided to keep the vehicle.

Enter the tax credit. The credit gives you a lower residual, which is a good thing if you buy the vehicle, and it reduces the payments by getting you the money early.

Here are three different situations. The first is a high residual lease where the purchase price is $40K and the residual is $25K. Call this HR (for high residual). The second is a low residual with lease cash. Here the purchase price is $40K, the residual is $20K, and there is $5K of lease cash. Call this LRLC (Low low residual lease cash). LRLC will always be better than HR since the payments will be the same but the buyout price will be lower.

The third is a low residual lease with a tax credit In this case the purchase price is $40K, the residual is $20K, and the tax credit is $5K. Call this LRTC (low residual tax credit). There isn't a ton of difference between LRTC and LRLC but LRTC will always be better. Why? Because while you get the lease cash in 36 equal monthly payments, you get the tax credit much sooner. Again not a big deal but still always better.

One difference is that you get the tax credit from the government and it is never reflected in the monthly. That's a good thing -- as mentioned you get the money earlier -- but some people have problems with what are called "mental accounts". They focus on the monthly, can't wrap their heads around the idea that the tax refund is acting to reduce the monthly payment, and hence think that they're paying less in LRLC. They're not but people aren't necessarily logical.

You may have forgotten the FIRST RULE of Leasing:

Put as little down as possible: Put everything possible into the lease payment including sales tax and the acquisition fee. The only exception is where you can make a security deposit equal to 10 months payments which substantially reduces the MF. But this is a refundable security deposit.

The reason for not putting any money down, and that would include the Federal Tax Credit, is that in the event your car is either stolen or totaled everything you put down is lost - puff vanished into the "ether".

This is because in the event of your car being stolen or totaled your insurance company is liable on the balance of the lease payments and the residual. You lose and the insurance company wins.

So if your salesmen suggest putting money down to reduce your monthly lease payment you must say NO!




see: https://www.macheforum.com/site/thr...sing-program-announced.2044/page-6#post-60729

 

[ajmartineau]

Your insurance contract probably says ACV or replacement cost. You can get an addendum to increase your coverage to replace your used car with a new one. Every company has different language in their contracts. Read yours or talk to an agent before you buy/lease the car.

 

[timbop]

To recalculate the monthly payments on Options is a manual process (system was not originally designed to accommodate changes post contract). You have to call in to Ford Credit to arrange the recalculation anyway, so I don't see why this would be any different since not everyone qualifies for the full $7500. But I would think they would only do one re-calculation per account, so I wouldn't plan on doing multiple post contract changes.

That's OK, it is a hypothetical at this point and I definitely would only do it once. The Mrs gets nervous when the monthly expenses go up, and she has her heart set on getting a vacation property next year so she is NOT happy about me replacing a paid off car with a new one that has a higher payment than the old one did.

 

[atlrealtor]

That's OK, it is a hypothetical at this point and I definitely would only do it once. The Mrs gets nervous when the monthly expenses go up, and she has her heart set on getting a vacation property next year so she is NOT happy about me replacing a paid off car with a new one that has a higher payment than the old one did.

im in the same boat with the lady?
where are you wanting a vacation property? I can help or refer you an agent?

 

[timbop]

im in the same boat with the lady?
where are you wanting a vacation property? I can help or refer you an agent?

Either the south jersey shore or ocean city, md. The wife doesn't want much: just a view of the ocean, a pool, and a place that's pet friendly.

 

[atlrealtor]

Either the south jersey shore or ocean city, md. The wife doesn't want much: just a view of the ocean, a pool, and a place that's pet friendly.

Sounds like a great vacation spot! I’m down in Atlanta, but I know a few agents up there. Message me if you need a referral! Be glad to connect you.

 

[SpyderCindy]

Yes - I just had my 6 month old Mach -e totalled which I put 10K down on - iwe actually got back MORE than what we paid. I purchased at MSRP!!!! Unfortunatley that will not happen now....

That's OK, it is a hypothetical at this point and I definitely would only do it once. The Mrs gets nervous when the monthly expenses go up, and she has her heart set on getting a vacation property next year so she is NOT happy about me replacing a paid off car with a new one that has a higher payment than the old one did.

Your insurance contract probably says ACV or replacement cost. You can get an addendum to increase your coverage to replace your used car with a new one. Every company has different language in their contracts. Read yours or talk to an agent before you buy/lease the car.

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