Evaluating Rebates, Incentives, and Low-Cost Financing

Evaluating Rebates, Incentives, and Low-Cost Financing
Presented by Jared Daniel of Wealth Guardian Group

Why are rebates and incentives offered on certain models?

Rebates and incentives are generally either cash awards or price reductions offered to increase car sales during slow periods. Manufacturers' rebates are typically offered directly to the consumer, while dealer incentives are awards paid from the manufacturer to the dealer for selling the car. Although these incentives are intended for the dealer, you may be able to get a lower price on a car if there's a dealer incentive involved. Rebates and incentives are often available on less popular models, overstocks, and year-end closeouts. Most rebate and incentive programs expire after about three months, although some are extended beyond that time.

How do you find out about rebates and incentives on the cars you're considering?

Manufacturers' rebates are generally well publicized; the Sunday paper is usually full of these offers. Information on dealer incentives is a bit harder to find, but several publications and Internet tools are available to help. Among these are Car Deals and Automotive News. Each issue of Car Deals contains a price break list, which is updated every two weeks. Automotive News is a weekly publication that also contains continuously updated information on rebates and dealer incentives.

Do you have to pay taxes on manufacturers' rebates?

According to IRS guidelines, a manufacturer's rebate is considered a tax-free reduction in the purchase price of the car. Thus, rebates paid to buy or lease a new car aren't included in your gross income.

However, a manufacturer's rebate is generally included in the sale price of the car for state sales tax purposes, if applicable.

Is it better to take a rebate or low-cost financing?

You may be given a choice between a rebate and special low-cost financing. In order to determine which is the better deal, you must calculate whether you will save more money by taking the rebate in conjunction with a market-rate loan or by accepting the special dealer financing. Here is an example of this calculation for a car priced at $20,000:

Option:	Choose low-cost financing	Choose rebate
Amount financed	$20,000	$18,000 ($20,000 - $2,000 rebate)
Interest rate	4%	8%
Loan term	48 months	48 months
Monthly payment	$451	$439
Total out-of-pocket cost	$21,648	$21,072

In this example, choosing to take the rebate would result in a lower total out-of-pocket cost than choosing the low-cost financing.

Jared Daniel may be reached at www.wealthguardiangroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.