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What CPAs Need to Know About Specialty Leasing

This article explores the traditional ways someone may purchase a vehicle, but also details how specialty leasing works.

Many clients ask their CPA about tax treatment for vehicles used for business purposes; but very few clients benefit from their accountant’s advice on the best way to finance their car or truck, specifically if these vehicles can be considered luxury, vintage, or exotic. This article details everything that CPAs need to know about how specialty leasing works, as well as other methods of purchasing a car of this caliber.

Specialty leasing is a service that can help your client get into the car they want while doing so in a way that makes the most sense for their financial situation.

Why don’t people ask CPAs for help when buying a car?

When it comes to buying a car, specifically a luxury, exotic, or vintage car, many buyers don’t usually reach out to their CPA or accountant for help which is a huge loss on their part because these individuals may not know about specialty leasing.

There are two main reasons why individuals in the market for a car don’t reach out to their trusted tax or accounting professional:for this:

  • The average consumer is often intimidated by the car buying process, and many have a limited understanding of their financing alternatives. They’re not eager to showcase that lack of knowledge, or to suggest they’re incapable of buying a car without asking their accountant for help.
  • CPAs are certainly more knowledgeable regarding the economics of vehicle financing, but they’re unlikely to know when a client intends to acquire a vehicle. Even if they had that insight, few accountants would be willing to insert themselves into the car buying process.

What Type of Client can Benefit the Most?

There is a unique category of client, however, that stands to benefit greatly from a CPA’s guidance, and may welcome an offer to help: they are serious car enthusiasts who drive an exotic, vintage, collector or luxury car. These individuals – who can afford to own (and even purchase outright in cash) a Ferrari, Lamborghini, McLaren, Porsche or other 6- or 7-figure “dream car” – often possess considerable knowledge of those vehicles. What many of them lack, however, is a complete understanding of the range of financing options available to them. 

The reason why a CPA’s guidance is particularly helpful for these well-heeled clients is based on the fact that, on average, those serious car lovers will change cars every 18 – 24 months. That’s because their passion for expensive cars typically is not limited to a specific vehicle or marque. Instead, they’re consistently seeking a vehicle that’s newer, faster, better equipped, more recent, or more rare. Simply put, true car lovers are always looking for a different driving experience.

Many clients can benefit from knowing how specialty leasing works.

For the millions of serious car enthusiasts who fit that profile, the financing method they choose – whether it involves outright purchase, traditional financing or leasing – is not always in their best interests, in terms of total capital outlay, cash flow management, or tax implications. And this represents an opportunity for CPAs to educate those clients regarding their options, and in the process, to strengthen their professional (and sometimes personal) relationships with them.

how specialty leasing works

Ways to Purchase a Vintage or Exotic Car

So what are the ways to purchase a vintage or exotic car? There are generally four methods of purchasing one of the categories of autos detailed thus far, including:

1. Outright Purchase

For a host of rational and sometimes irrational reasons, a significant number of exotic and vintage car enthusiasts always purchase those vehicles 100% in cash, right up front. Some of those buyers believe that any means of financing is a sign of weakness; that true “ownership” of an expensive car, either in terms of bragging rights or entitlement, always involves writing a big check.  This type of client is the most difficult to approach regarding reasons why the $350,000 he’s spending for his Ferrari might be more wisely allocated.

It may be worth asking this “cash only” client to explain their thinking, as it sometimes provides an opening for an objective, rational discussion regarding viable financing alternatives, either for potential tax advantages or purchasing flexibility when he or she starts looking for their next car. 

2. Traditional Financing

Many of the high-end car marques do offer traditional financing for purchase of their new and previously owned cars. Traditional financing is also used by owners of expensive vintage cars; although it can be difficult to find a financing source – such as a bank or credit union – that understands the market or values of those vehicles. Few bankers are willing, for example, to underwrite a $150,000 loan for a 1958 Porsche 356, which they view simply as a 62 year-old vehicle.   

Some high-end marques, including Lamborghini, offer hybrid financing arrangements such as “single pay” leases that require a one-time only payment up front, similar to an all cash transaction. This involves a capital cost that’s lower than what the sum total of all the lease payments would be, and also protects the owner from price depreciation at the end of the lease, through the agreed upon residual value.

Any client who’s using traditional financing would benefit from a discussion regarding the advantages and disadvantages of leasing, based on their financial circumstances and how long they intend to own the car. In fact, many buyers of previously owned exotic and vintage cars – purchased through dealers, private sellers or at auction – do not know that those vehicles can be leased through Specialty Leasing arrangements.

3. Closed-End Leasing

Whether your client leases a $25,000 Prius from Toyota Financial Services, or a $125,000 911 Carrera from Porsche Financial Services, those dealer-sponsored “rental” arrangements will most often involve a down payment, fixed monthly payments based on several factors, a 3-year ownership period, a limitation on mileage without penalty, and significant fees for early lease termination. Closed-end leasing can make sense for Toyota or Ford drivers who look at transportation as a fixed cost, and look forward to having a new car every 3 years. But for your Porsche-loving client who considers cars an important part of their lifestyle, a 36 month lease will be viewed as a self-imposed prison sentence if, after 2 years in their Carrera, they want to be driving Porsche’s new 911 Turbo S Cabriolet right now.

This is the type of client you can help, simply by making them aware of Specialty Leasing and exploring whether it addresses their financial needs and lifestyle requirements.

4. Specialty Leasing

Over the past 25 years – to accommodate the large and growing number of serious car enthusiasts who like to switch cars frequently, for those who want to own their car at the end of their lease term, as well as collectors looking to make long-term investments in cars – specialty leasing has emerged as a viable financing strategy. A small number of reputable firms (including my firm, Premier Financial Services) currently provide these leasing arrangements.  

Here’s how Specialty Leasing works:

Below is everything you need to know about how specialty leasing works.

  • Your client selects a car from anywhere in the country, and from any source. Although they most often finance exotic, vintage, collector and luxury cars with significantly higher price tags, Specialty Leasing firms will finance any car with a value greater than $50,000.
  • The lease agreement is custom tailored with respect to length of the lease, down payment, and the lease-end residual value for the car. While the lease is in place, your client makes payments based on the difference between the amount financed and the residual value of the car.
  • When the lease term expires, or if your client wants to end the lease early for any reason, he has the same four options, based on a simple interest formula. There are no surprises, or hidden fees. Your client can:
    • Pay the residual and own the car,
    • Sell the car privately, pay the residual, and keep any difference,
    • Trade the car into a dealer who pays the residual, and your client keeps any difference, or
    • Refinance the residual through a new lease without a large cash outlay, and continue to own the car.
  • Your client may also substitute cars within their existing lease without penalty, simply by paying any difference in value between the two vehicles. The lease’s residual value and lease payments remain the same.
  • Sales tax on a purchased or financed vehicle is payable up front. With a lease, in most states, tax is based on the monthly payment schedule, providing your client with the use of that money over the lease term. More significantly, if the car is leased under a business name, and not necessarily a corporate entity, pre-tax dollars may be used to pay for the lease.

Very often, an accountant’s value is based on his or her ability to educate clients regarding their options. Financing of cars should be no exception, particularly when it involves clients who play in the “big leagues,” in terms of car values and frequency of transactions. It is these clients that should be aware of specialty leasing and how specialty leasing works.

Talk with Your Clients… about how specialty leasing works.

Whether a CPA chooses to play a pro-active role in educating clients on car financing, or simply waits to be asked for guidance, it’s important to understand the complete landscape of available options, including specialty leasing. 

If you’re looking for a discrete “middle ground” to promote your car financing expertise, a simple mention on your website, or in your next client alert, may be all that’s required to initiate client conversations on that topic. Chances are, whether those discussions are limited to car financing, or lead to broader topics, that they will further strengthen your relationships and your value to clients.

For more CPA and accounting related articles, check out this page of our site.

Jeremias Ramos is a CPA working at a nationally recognized full-service accounting, tax, and consulting firm with offices conveniently located throughout the Northeast. Jeremias specializes in tax and business consulting with focus areas in real estate, professional service providers, medical practitioners, and eCommerce businesses.

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