# washington DC tax treatment for lease?



## potxoli (Jun 2, 2008)

Hi,

I searched for this info for the past 20 minutes both here and on google, but I can't seem to find it. Does anyone know if DC requires you to pay the full 7% tax for a lease, or just the tax on the financed part?

Thanks,

-Eric


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## jkjjpc (Sep 6, 2005)

Eric

In DC you pay 10% on your monthly lease payment, there is no upfront sales tax. So, while the rate is higher than the usual sales tax amount, and you pay the tax on the depreciation and the interest, you only pay the tax on the actual lease value and not the entire car. Note that you also pay the 10% on any cap cost reduction so even more than the usual lease it makes no sense to do a cap cost reduction. Also, you pay the tax on the origination fee, so if you that up front instead of as part of the lease you have to pay tax (you would be paying the tax on the fee if you rolled it into the lease, and you end up paying tax on the interest on the fee).

I have now done three leases with BMW FS and live in DC, so I am confident the answer is correct.

John


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## BMWFanboy (Apr 27, 2008)

jkjjpc said:


> Eric
> 
> In DC you pay 10% on your monthly lease payment, there is no upfront sales tax. So, while the rate is higher than the usual sales tax amount, and you pay the tax on the depreciation and the interest, you only pay the tax on the actual lease value and not the entire car. *Note that you also pay the 10% on any cap cost reduction so even more than the usual lease it makes no sense to do a cap cost reduction.*
> 
> John


I'm not sure I follow your logic there. If you don't put money towards cap cost reduction, you still end up paying that amount with interest over your lease term and still get taxed. I'm not from D.C., just curious.


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## potxoli (Jun 2, 2008)

jkjjpc said:


> Eric
> 
> In DC you pay 10% on your monthly lease payment, there is no upfront sales tax. So, while the rate is higher than the usual sales tax amount, and you pay the tax on the depreciation and the interest, you only pay the tax on the actual lease value and not the entire car. Note that you also pay the 10% on any cap cost reduction so even more than the usual lease it makes no sense to do a cap cost reduction. Also, you pay the tax on the origination fee, so if you that up front instead of as part of the lease you have to pay tax (you would be paying the tax on the fee if you rolled it into the lease, and you end up paying tax on the interest on the fee).
> 
> ...


Fantastic info, thank you!! That makes the lease that much more attractive than buying.


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## jkjjpc (Sep 6, 2005)

BMWFanboy said:


> I'm not sure I follow your logic there. If you don't put money towards cap cost reduction, you still end up paying that amount with interest over your lease term and still get taxed. I'm not from D.C., just curious.


Good point, I missed that aspect of the cap cost reduction. Still not a good idea in my mind for all the other reasons noted on this board, but you're right that you either pay the 10% up front on the cap cost (and lose any investment money you could make on that up front cost over the term of the lease) or you put no money down and pay the 10% on the higher monthly lease payment for the balance of the lease.


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