BREAKING: BMW Finally Increases i3 Lease Credit To Industry Norm Of $7,500

MAY 13 2015 BY ERIC LOVEDAY 42

Tom Moloughney's BMW i3 REx

Tom Moloughney’s BMW i3 REx

When the BMW i3 hit the U.S. market, BMW curiously made available only $4,875 of the $7,500 Federal EV Tax Credit to those who leased an i3 – saying that was all that was available to them via some unheard of before, business tax code clause.

This raised a lot of questions, especially since Nissan and Chevrolet had long been offering the full amount of the tax credit ($7,500) to those who leased the LEAF or Volt.

We never did fully figure out why BMW offered the reduced rate, but now that $4,875 lease credit has somehow miraculously changed to the full $7,500 for 2015 BMW i3s.

As a BMW dealer in Arizona has informed us:

Just announced!

The lease credit for the 2015 i3 has been raised from$4,875 to $7,500.

The problem is that those who initially purchased an i3 often opted for BMW’s more complicated/pricey OwnersChoice with Flex option (which is basically a term financing product with a balloon payment at the end in order to simulate a lease) to get the full credit. Lots of those owners now feel as though BMW screwed them over.

On the plus side, for new buyers looking to lease a BMW i3, this development is certainly welcome news.

Just for fun, we thought why not revisit what BMW told us in the past regarding the lease credit. Over a year ago, InsideEVs Tom Moloughney reached out to Timm Bock, Product Development & Pricing Manager for BMW Financial Services.  Here’s Bock’s email response in its entirety:

Tom,

Please see my response below regarding the Lease and OwnerChoice products you had asked about, as well as how each product relates to the Federal EV Tax Credit when purchasing a BMW i3.

Traditional Lease – Our tax team has advised us that each leased BMW i3 qualifies us for a Federal EV Tax Credit of $4,875 – all of which is passed on to the consumer. This $4,875 Lease Credit can be directly applied as a Capitalized Cost Reduction, or to other costs, at the time of lease-signing. Regardless of your tax situation, by choosing a BMW FS lease with the $4,875 Lease Credit, you’ll know exactly how much you will benefit, it’s applied at the time of purchase and there is no subsequent filing, administration or personal tax implications.
(As a reminder, only EVs purchased for personal use are eligible for the maximum $7,500 tax credit. However, the benefit is reduced to $4,875 for 100% business use. Regarding Nissan and Chevy, we can’t speak to why they are choosing to offer $7,500 or more; this may be part of the their incentive or discount strategy.)

But for customers who want to claim the maximum tax credits, we have made attractive alternatives to leasing available: OwnersChoice and OwnersChoice with Flex.

· OwnersChoice – OwnersChoice provides: low lease-like monthly payments, the lease-like option to return the car at the end of the term AND the eligibility for you to claim the maximum income tax credits.

· OwnersChoice with Flex – In addition to the OwnersChoice benefits above, OwnersChoice with Flex allows you to increase your final balloon payment due at the end of the contract term by up to $7,500. Increasing the final balloon payment due further reduces your monthly payments, and in this way provides you with the opportunity to benefit from the $7,500 immediately. OwnersChoice with Flex bridges the time-gap between the vehicle’s purchase date and your tax filing date. We are proud to say that BMW FS is the first in the industry to develop an enhanced balloon finance solution like this for EVs.

BMW Financial Services will also offer our traditional loan product. Like both of the OwnersChoice products above, a BMW FS loan provides you the eligibility to claim the maximum $7,500 Federal EV Income Tax Credit.

In general, due to the uncertainty and complexity of tax credit rules, we encourage anyone considering an EV to consult with a tax professional.

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42 Comments on "BREAKING: BMW Finally Increases i3 Lease Credit To Industry Norm Of $7,500"

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David Murray

Could be because of poor sales last month?

CDAVIS

Based on how BMW stated the Fed Tax Credit works (which is not 100% incorrect) in th above BMW letter, it’s likely that BMW is adjusting to correct the wrong explanation in their letter. Perhaps the BMW Tax Department, Finance Department, & Marketing Department were not on same page at the time that letter went out ( that can happen even in large well run companies like BMW). It will be interesting to see if BMW also adjusts legacy leases accordingly; which they should to take the High Road.

Mister G

BMW is not well run if they misinterpreted federal tax credit.

I don’t get it. The letter says you get the 7500 credit if its for 100% personal use.

JakeY

I think it is as below:
If you lease the vehicle, technically BMW (or whoever is the company leasing to you) is the one who purchased it, so it is 100% business use for IRS purposes.
If you purchased the vehicle (even with financing through the OwnersChoice with Flex option), then it’s 100% personal use.

Nix
Nope. BMW simply multiplied by the 35% tax rate, and subtracted the 35% tax rate to get $4,875. $7,500 X 0.35 = $2650 (Maximum Taxes BMW could incur) $7,500 – $2,650 = $4,875 (Same as $7500 X 0.65 for math pedantics who would never do it that way.) But it doesn’t work that way for businesses. I confirmed this with the IRS, starting at http://www.irs.gov/Credits-&-Deductions/Businesses and followed the link to http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-IRC-30-and-IRC-30D These are the Business pages for this program, not the Personal pages. This confirms that this is indeed applied as a tax “Credit” even for businesses. “Tax Credit” is a very specific term for the IRS, and it means that you get the money as a reduction in tax liability, not as income to the business. This means you total up all your income, determine your tax liability, then subtract the full $7,500. This $7,500 never appears in a company’s income side of their return, only on the Tax Credits side, after income has already been calculated. I was curious, so I double-confirmed by pulling up my tax software for my company, and threw it into my next quarterly statement. Indeed the software threw the Tax Credit exactly where… Read more »
IDK

@David Murray I was thinking the same thing. Looking at the scorecard for the last two months it appears sales have dropped by nearly 50%. IMO BMW thought they could milk more money out of customers. Now that sales/leases are falling sharply they miraculously pull the full $7500 tax credit out of the hat.

Speculawyer

Yeah, I wouldn’t be surprised if BMW has to do a bit more to keep moving i3s. With its relatively high price, its unconventional looks, and lots of competition from lower-priced competitors like the Fiat 500e, LEAF, Spark EV, Chevy Volt, and even the Ford Focus Electric . . . I think they’ll have to lower the price a little.

Dan

And why not also extend it to remaining 2014 i3s? Seems like a good way to move inventory.

MTN Ranger

2014s have an additional $2000 BMW credit that is not offered on the 2015s.

bro1999

BMW exec: WOW, i3 sales tanked last month
Underling: Eh….maybe it’s time to finally let costumers have the rest of the tax credit we had been pocketing”
BMW exec: Good thinking!

Phil

You guys are too funny. The reality is that when a business takes this federal tax credit, it is seen as a taxable benefit by the IRS. Therefore, it was being reduced by 35% (corp tax rate) as they would only be able to claim on 65%. Therefore they pass on the portion they can receive. There is no holdback.

Other OEMs decided to compensate the balance with their own cash support. Obviously it’s an easier sales and marketing message. In any case it appears they too will give cash on that delta.

But the dopes in the EV community still bark about some false tax holdback. This sites becoming more like a freeper site everyday. What happened to the informed community?

bro1999

Spin it any way you want, but BMW seems to have been standing alone in not granting the full 7.5k as a cap cost reduction on leases to customers. Nissan, GM, Ford, etc…all have been passing the full credit onto customers.

Combine that financial sleight of hand with their decision to neuter the REx on the i3, and you can see where BMW’s priorities are.

Mint

Maybe you should check your own pathetic math before calling others dupes.

Whether BMW gets $17.5k in lease payments over 3 years plus the $7500 credit, or gets $25k in lease payments without any credit, that’s $25k in revenue subject to taxation. The $7500 is equivalent to $7500 from a customer.

If I put $10k down on a lease, should only $6500 go toward the cap cost reduction because my payment is taxable revenue?

vdiv

Corporations pay taxes?! This is news to me.

Speculawyer

Not when they use part of your tax-credit. 😉

Phil

And if there is no taxable income, they get NO tax credit from the government. Which means even the reduced amount that was “passed on” is simply a cash discount.

Thanks for proving my point even further.

And stop with the “passing it on”. There is NO 7500 to pass onto a customer from a corporation. Period. Full stop.

All the drama mamas in the EV community can talk about spin or slight of hand all they want. Reality just doesn’t jive with your perception.

Be frank, and just say that you think they should’ve put 7500 in cash to support the car.

Nix

Phil, what information do you have that the private company BMW Financial Services NA, LLC owes no taxes, so wouldn’t be eligible for tax credits? It is a private company and isn’t required to release that information.

But if you are implying that BMW Financial Services NA, LLC (a subsidiary of BMW of North America, LLC) is incapable of adjusting their cash flow between BMWFS and BMWNA to intentionally generate tax liability for BMWFS, you know nothing about business taxes.

There is no conceivable situation where BMW Financial Services NA, LLC would ever let these tax credits go unclaimed. All they have to do is adjust transaction prices between the two entities to shift book profits from one LLC to the other. This is entirely legal under US tax code, and if they didn’t do this, they are incompetent.

CDAVIS

@Phil said: “The reality is that when a business takes this federal tax credit, it is seen as a taxable benefit by the IRS. Therefore, it was being reduced by 35% (corp tax rate) as they would only be able to claim on 65%.”


I don’t think the “it is seen as a taxable benefit by the IRS” is correct in this case. The $7500 is a straight tax credit (not a tax deduction triggering counter party benefit) that can be fully taken by the car title holder (the Lessor) provided the Lessor has a large enough end of year tax liability for which to take the full $7500 credit.

That $7500 tax credit savings then is passed on to the Lessee as a Capitalized Cost reduction for factoring the lease payments…or alternatively (and better yet for the Lessee because then some of the credit is not retained in the end-of-lease residual) as a Lessee starting credit against lease payments.

Lensman

Phil said:

“But the dopes in the EV community still bark about some false tax holdback. This sites becoming more like a freeper site everyday. What happened to the informed community?”

If you really know more than anyone else on this subject, then present your credentials. Are you a CPA or a tax lawyer? If not, then why should we believe your assertion is in any way authoritative, or even informed? In any case, insulting the community as a whole isn’t likely to increase your ability to persuade your readers.

I think you’ll find that we’re not going to agree on just who is, and isn’t, part of the “informed community”, or just who is or isn’t a “dope”.

From the Urban Dictionary: “Freeper: Right-wing political activist. So-called, because it is the nickname of the denizens of the ultra-right wing Web site FreeRepublic.com.”

You appear to have gotten that wrong, too. If anything, those interested in EVs tend to skew to the left on the political spectrum. (There are, of course, exceptions. As with many things in the real world, the distribution is a bell curve.)

Phil

Good point. Sorry for the disparaging remarks. W/o getting into much detail, yes it’s my area of expertise as a tax guy. And as an EV fan I’ve watched a weird tone overtake the dialog over the past couple years and it’s annoying.

Nevertheless, I could care less if nobody wants to believe me. All I’m doing is explaining how it actually works. The good news is this should get more people to drive an EV.

Mint

LOL are you serious? AFAICS, you suck at your job.

For a profitable company like BMW, show me how the tax liability is different between:
A) $17.5k lease payments plus $7500 EV credit
B) $25k lease payments with no EV credit

The next time you lease or finance a car, you should tell them to only reduce the cap cost by 65% of your down payment to the cap cost, because according to your logic the other 35% is taxed.

Nix

Phil — “The reality is that when a business takes this federal tax credit, it is seen as a taxable benefit by the IRS. ”

Actually, that statement is entirely false. Tax Credits do not appear on the income side of a tax report, and are not considered taxable income.

This is calculated in 3 steps:

1) Calculate income
2) Calculate taxes due on income
3) Subtract Tax Credits from taxes due

My sources are the IRS.gov for Business website, corroborated by my business tax software. (see my posts above.) What is your source? Brown hole?

PaulG

So how much would a lease be now? I quite liked the one I drove (although the wife won’t let me buy it)

Disappointed

Trust your wife’s instincts

In the end you’ll be TWICE as happy.

She will love you for listening
AND
You won’t be staring daily at your mistake!

Mike777

You mistyped your url:

Here’s a link to where you belong:

http://www.investing.com/commodities/crude-oil-news

Disappointed

Shame on You !

There is no room on this site for

“Crude” comments.

mr. M

Lol

MP

Has anyone found this officially announced from BMW? I just signed on the 28th and need ammo before calling BMWFS.

Sam EV

Their “OwnersChoice with Flex” financing is actually a pretty cool idea.

Nix
It depends on how much depreciation risk you want to take. Balloon loans for cars are OK only under 2 conditions: 1) You have a firm expectation about the depreciation rate for the vehicle matching or beating the balloon loan amortization schedule. 2) You have enough equity/cash/credit at the end when the balloon payment is due, that you know you can either refinance the remainder of the balloon payment or pay it off in cash. Worst case scenario: Buy a BMW i3 for 50K with no trade-in and very little cash down (no equity in the car). When the balloon payment is due, the car is worth much less than the balloon payment. In a lease you shrug your shoulders and hand over the keys and let the dealership deal with the depreciation losses. With a balloon payment, let’s say the car depreciated to be $10K in value below the balloon payment amount. Now banks won’t allow you to take a lien for more than the value of your car. Now you can’t refinance without bringing $10K of your own cash to the deal (more actually). If you can’t pay off the balloon payment in cash in total, or refinance… Read more »
Phil

it’s a fixed residual. no risk, like a lease.

Nix

No. It is not like a lease at all. In a lease the consumer has the choice to either return the car or purchase the car at the fixed price (or negotiate).

If the car depreciates badly, the consumers simply hands the keys back and the lease company takes the depreciation loss. The lease company is the party stuck with the depreciation losses, not the consumer.

There is no return option with a balloon loan. Whatever depreciation happens is entirely the problem of the consumer. The consumer is stuck with the depreciation losses, not the lender.

The lender gets their money no matter what. Heck, even if they repo your car and it doesn’t sell at auction for enough to cover the loan, they can still come and sue you for what is still owed (depends on the contract terms).

I’m beginning to think you don’t actually know anything about money at all…..

Phil

Funny. You’re showing that you’re the least informed on here. And you’re literally the worst advocate for EVs on this blog. You’re constantly spouting MIS-information on every topic in this thread and you’re a disservice to this blog.

The Ownerschoice program has a FIXED RESIDUAL WITH GUARANTEED BUYBACK. The RISK remains with BMW. It’s the same with the Tesla buyback as well. Why is this so hard?

For the sake of the EV community, either do some learning, or stop with the nonsense.

Per the details:
When your OwnersChoice or OwnersChoice with Flex contract term is over, you may have
four choices:

1 Make the balloon payment and keep possession of your BMW i vehicle.

2 Refinance the balloon payment (if eligible) through BMW Financial Services.

3 Sell your BMW i vehicle back to BMW Financial Services for the pre-determined resale price and pay any remaining contract balance.

4 Make the balloon payment and use your BMW i vehicle in trade or as a down payment on your next BMW or BMW i vehicle.

Phil

And just to be clear, it’s option 3 where you can sell your car back after term end at the predetermined price.

price $48,000
residual 50%
buyback $24,000

Simple maths

Nix

Unlike you, when I’m wrong I admit it.

I retract my previous comments because they were too general, and applied to generic balloon loans. I wasn’t aware of #3 that is significantly different than traditional balloon loans:

3 Sell your BMW i vehicle back to BMW Financial Services for the pre-determined resale price and pay any remaining contract balance.

My posts still hold true for anybody considering a balloon loan that does not have this clause.

Nix

To me this appears to be a completely naked ploy to push customers into Sales instead of Leases purely to reduce their lease risk exposure.

When they lease you a car, they take the risk of depreciation. When they sell you a car, the risk of depreciation is entirely yours.

I am 99% certain that BMW did this to avoid large lease return numbers and the risk of the downward value pressure to lease returns they will have to sell on the secondary market. Just like the Nissan dealership complained about due to high lease rates back on this story:

http://insideevs.com/dealer-concern-enormous-amount-incoming-used-nissan-leafs/

High lease rates have ALWAYS driven down residual values. Look at Mercedes depreciation rates for example (MB has one of the highest lease rates of any company, especially in California).

MythBuster

Well, as with a lot of breaking/early news that gets passed along from the inside, the website can be the last to change.

MythBuster

That may be true however, the breaking news story did not cite the specific Arizona dealer. So the well inform can validate the claim and the journalists can maintain their journalistic integrity.

WillT

MythBuster is a troll!!

Here in Tennessee we are getting the full fed tax credit. Check out this dealer.

http://www.bmwofchattanooga.com/new-inventory/index.htm?model=i3&&&&superModel=BMW+i&

David C

Hi,
I live in GA, and leased a 2015 i3 with Owners Choice (not flex) in March. Can anyone tell me for sure or not, if I can now get the remaining credit added?
Thanks