My car is worth more than I paid for. Here’s how I did it.
- Since cars quickly lose value, it rarely makes sense to buy new.
- Electric and partially electric cars can get you a big tax credit – for now.
I once bought a station wagon for $94 and two gin and tonics. I also got a nice Volvo for free, fixed it for $425 and drove it for years. But I have standards – when the leak in the Volvo’s sunroof soaked my girlfriend, I upgraded.
I was proud to have good cars at such absurd prices. I was the last person expected to score a New auto. It just doesn’t make financial sense. This old saw is true – a new car loses value when you drive it off the field. And it makes even less sense to buy new now, when car prices have skyrocketed.
But if you’re looking for a ride, there’s a sure-fire way to cut the cost – and often, by the thousands. You might even avoid a car loan. Right now, I could sell my used car for more than I paid for it new. Here’s how I did it.
Tune Into That New Car Exception
The major car manufacturers are betting on electric. But even if you’re not sold on the technology, keep reading – you don’t have to buy a fully electric car to cross this exception to new car prices. Since electric vehicles (EVs) and plug-in hybrids (PHEVs) pollute far less than gas-powered cars, federal and most state governments are giving you a break from buying both types of vehicles, through tax credits.
That can be a really big break — like $7,500 from the federal government for a fully electric car. You get a lower amount for a PHEV and other partially electric rides. Add state credit and you could be looking at a big personal finance boost.
There are a few caveats:
- Federal credits apply in full only to the first 200,000 electric cars sold by a manufacturer. After a manufacturer has sold 200,000 cars, the credits decrease each quarter and then are phased out.
- If your tax account is less than the amount of the tax credit, you only get the amount of your tax account.
- Tesla and GM have sold so many electric vehicles and plug-in hybrids that you don’t get any federal credit for either.
- You’re not supposed to claim the credit if you’re buying the car only to resell it (and in some states, resale conditions may also apply).
- Some states only offer a rebate on electricity or a credit for installing a home charger, but no credit for the vehicle itself.
How to bring home a tax credit
In my case, I bought a Prius Prime PHEV, which has, depending on the effect of outside temperature on battery capacity, 25 to 35 miles of electric driving per charge. I was lucky enough to drop the price of the Prius to $22,000. The federal government then granted me a tax credit of $4,502. My state of Massachusetts cut me an additional $1,500 break.
So all told, I got my new ride for $16,000 (technically $15,998, thanks to that inexplicable $4.502). Not bad, considering a late-vintage used Prius would cost you $14,000 to $15,000.
Admittedly, the pandemic has led to an unexpected rise in car prices. But right now, the book value of my $16,000 purchase is an incredible $25,520 for a private sale. So this time – albeit under unusual circumstances – my new car has challenged the old view of loss of value. And it allowed me to keep a lot more money in my savings account.
Do your homework
If you want to try the same now that car prices are abnormally high, do your homework. The federal government maintains a helpful breakdown of credits, and the list of eligible vehicles is surprisingly long, even without Tesla and GM. Any type of car with plug-in capability should be on the list. President Joe Biden voiced his support for extending and increasing appropriations in the failed Build Back Better bill, so there’s a chance things could get even better.
Your state’s rules can be quite specific (and some states, including Kansas, Kentucky, West Virginia, and North and South Dakota, don’t offer any credit). The National Conference of State Legislatures offers an interactive map with lots of related information about electric vehicles and plug-in hybrid vehicles. It’s a good starting point.
It should be noted that there is no rule that says you to have to use the electrical capacity of a PHEV. I plug mine in every day and get amazing mileage, but the credit is mine whether or not I use the electric motor. I just got used to the instant, quiet torque of electric driving, not to mention the game of trying to get 2,000 miles or more per tank. And it’s a game that always works in favor of your finances.
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