Thought experiment - Clarity PHEV yearly trade-in + repurchase

Discussion in 'Clarity' started by Ray B, Aug 30, 2019.

  1. Ray B

    Ray B Active Member

    Not that I'm considering doing this, but if one were to consider it from a pure capitalist mindset, doesn't it make sense to buy a Honda Clarity PHEV (lets say base model for now), and drive it for a year and treat it gingerly, while collecting the tax credits and rebates, and trade it in the following year and buy a new (same) model one year newer than the previous and collect the tax credits and rebates and do the same thing year after year?

    Key Assumptions: 1) you are in a tax situation which will allow for the full $7500 federal tax credit year after year; 2) you don't care about conspicuous consumption and the effect on the environment; 3) the Clarity PHEV will continue to be available as new models at roughly the same MSRP and sales price year after year; 4) trading in rather than selling to a third party, although the 3rd party would likely be more profitable.

    I saw a paper today (https://www.sciencedirect.com/science/article/pii/S0301421518306669) that described depreciation of BEVs, PHEVs, HEVs, ICEs relative to each other and then looking a the kbb estimate of my 1 year old Clarity, there was good agreement (current trade in value averaging ~$20.6K). If I can get a new model at around say $29-30K (USD) every year, and then recover the tax incentives (minimum $7500 USD). After say 4 years of doing this you'd have absorbed $30K of tax incentives, plus you'd have a new car all the time (no battery life worries to start with), and after four years you'd be sitting in a car that is worth say ten thousand $ more than a four year old version of the same car. The positive trend would probably get better the longer you could keep it up.

    Again, I'm not considering it, but in a way the numbers seem to absurdly favor trading in every year, do they not? Yes you take the depreciation hit every year which is really steep, but the tax incentive and the discounts that seem to be offered appear to offset most or even all of it. In fact I looked at the current dealer discounts in MA where I live, and it is actually MUCH cheaper to buy a new Touring model rather than a base model thanks to an $8500 (!!) discount at Hyannis Honda. Bizarro world.

    I am a believer that collectively we use way too much resources, so while these incentives are great to allow BEVs and PHEVs to make progress in sales, I think the tax credits and rebates should be limited so that people don't have incentive to game the system (please refrain from political commentary).

    I think it is a moot point since the Clarity PHEV probably has a very limited future, but if it is supplanted by a model that gets the same tax incentives (or better) the logic may still hold. Anyway, just thought I'd share...

    (I know I am leaving out sales tax, TTL, doc fees, extra insurance, etc. so at best it may be a wash from a money standpoint but still you'd have a new vehicle perpetually and no need for an extended warranty, nor yearly maintenance costs). I can do some more thorough cost analysis if anyone is interested. The numbers will probably vary quite a bit from state to state depending on rebates, discounts, availability, etc.
     
  2. petteyg359

    petteyg359 Active Member Subscriber

    The federal tax credit explicitly disqualifies purchases "intended for resale". What you're proposing is going to be seen by the IRS as flagrant violation of that clause.
     
    Ray B likes this.
  3. Ray B

    Ray B Active Member

    ah - thanks that makes sense. I thought I read that someone on the forum did such a trade-in a while back, thought it could have been somewhere else. I didn't know it was verboten. That makes more sense...
     
  4. jack.

    jack. New Member

    There was definitely a thread here from a guy who bought a 2018 base model then traded it in for a 2019 touring and ended up a couple hundred dollars ahead
     
    Louis Nisenbaum likes this.
  5. Sandroad

    Sandroad Well-Known Member

    I know folks who buy a new car every year. I think the IRS would flag that only if you didn't keep the car and use it yourself for the year. I can't see it being a big deal to claim the credit each year, so long as you're keeping and using the car all year. The market needs good used Claritys, so don't worry about the consumeritis part of the plan. The weakness I think is in the depreciation. Book value and real-life value could be pretty different. I haven't run the numbers myself, but a used Clarity is goin to be worth a lot less on a dealer's lot than the final price of a new one to a customer. Realistic full accounting could show a 4 years loss buying 4 that might end up being close to the 4 year depreciation on buying just one.
     
    JustAnotherPoorDriver likes this.
  6. 2002

    2002 Well-Known Member

    I think you would probably need to sell the used ones private party to help make the economics work, unless you happened to get a really good trade-in offer from the dealer. I agree with Sandroad that the IRS would likely not see it as for resale if you drive it for a year. It might flag an audit at least on that one point but when you show proof that you drove the car yourself for a year I wouldn't think they would accuse you of buying it for resale. However if that's still a concern maybe trading it in would make the argument even stronger as that is clearly not resale. I also agree that you would be putting more electrics onto the road. Your customers would be those who don't qualify for the tax credit. Also being in "the game" you would be taking your time shopping around and getting your new one at a larger discount than perhaps the average buyer would get just going to their local dealer.

    Of course the volatility of the market probably would keep it from working for four years or whatever, even if the Clarity continues to be manufactured that long and the tax credit is still available, but no reason not to do it once a year for however long it works, as long as the net result is even close to break even you have a new car each year, when it stops working then you keep the one that you end up with.

    But on a more realistic note since I know that was just hypothetical, there was someone on here who upgraded from Base to Touring for very little cost because of a great deal on it, I'm thinking it may have even been during the same year or maybe it had crossed over a calendar year I don't remember.
     
  7. Robert_Alabama

    Robert_Alabama Active Member

    I think that as long as you can honestly say that you bought the Clarity and claimed the tax credit without the intent to resell it you are fine.
     
  8. DucRider

    DucRider Active Member

    Keeping it for a year would be fine for the IRS. Nobody ever buys a car intending to keep it forever and never sell it. The leasing companies like Honda Financial intend to sell every car they purchase from dealers to lease to their customers. Intent to resell would be more like never registering and insuring the car in your name.
    And most States require a prorated payback of their rebate if you not keep it a minimum amount time. (Oregon is in the process of changing it from 100% payback to a prorated amount).
    Local dealer has two CPO touring models they are asking $29K for. With $7,500 Federal and $2,500 to $5,000 State incentives available on a new one, not sure how that is going to work out for them (but with new ones only available in CA, it may be fine?)
     
  9. Tangible

    Tangible Active Member

    The Massachusetts tax rebate requires that you keep the car for several years. I don’t believe there’s any routine enforcement mechanism, but a person claiming the rebate every year might raise some questions with Mass DOR.

    Also, in MA (and other states?) sales tax on the new car is not assessed on the portion of the price covered by a trade-in, giving an advantage to trading in over a private sale.

    Finally, there’s MA excise tax to consider. It’s calculated annually on the hypothetical market value of the car, and is sharply higher in the first year of ownership.

    I would certainly consider this maneuver if and when a Clarity with material improvements is offered, but as a purely financial play I think it’s best kept as a thought experiment.
     
  10. Fast Eddie B

    Fast Eddie B Well-Known Member

    Agree 100%.

    Pretty sure the IRS has bigger fish to fry than trying to prove intent in a case like this. I’m confident we could prevail, in that we had zero intent to resell when the purchase was made.

    We may or may not come close to again being in a position where we could benefit from the full $7,500 credit this year. And we’re still speculating on the 2020’s. But if it turned out to be anything close to a “push”, I think we’d strongly consider a trade. I think a new color would be refreshing!*


    *Being a bit red/green color deficient, I just have to take the word of others that our green Clarity is gorgeous. For a replacement, I’d be leaning towards it something brighter. I like the silver, but Karen thinks it’s the least visible color from an safety standpoint. Assuming no new color scheme for 2020, I especially like the way the white ones look with the black accents.
     
    Louis Nisenbaum likes this.
  11. oddhack

    oddhack New Member

    There's no way to know if the very steep dealer incentives that have been available this year will continue to be offered on future models.
     
  12. insightman

    insightman Well-Known Member

    You can be certain that there will be no dealer incentives on the special-order Clarity PHEV's shipped to states not named California.
     
  13. graure

    graure Member

    Gee, this almost makes sense. The KBB trade-in value for my 2018 w/ 15k miles is $20-23k, which with the $7500 federal could encapsulate $30k worth of car, but I think my OTD price was about $33k. This plan actually seems to better fit with the Prius Prime, which although it has a lower rebate value, also has a significantly lower price and similar trade-in value as the Clarity.
     
  14. EvenSteven21

    EvenSteven21 New Member

    I may, or may not know someone who has done this. I've heard the best way to do it is with a lease. That way you don't pay all that sales tax up front and the dealership discounts your lease for the federal rebate. Saving you the worry of claiming the tax credits repeatedly. I recommend selling to online resellers like Carvana, shift, etc. With these type of resellers you can get near private party prices without the hassle and time wasted of selling on your own.

    Allegedly California is supposed to ask for its rebates back if you sell the vehicle before 3 years, prorated for the months you owned it. California is pretty good at getting their money back so I'd definitely expect it. The other drawback in CA, is you can only claim 2 California clean air rebates. So you have a spouse cosign and claim one if you exhaust your rebates.
     
  15. Fast Eddie B

    Fast Eddie B Well-Known Member

    What an interesting idea!

    In our case, we paid cash for our 2018 base model Clarity and were in a position to get the full $7,500 credit. There’s a good chance we won’t have that much tax liability for 2019.

    So, a tentative plan could be to sell our car and invest the proceeds into something bearing relatively secure interest or dividends. There are utility stocks paying up to 5% dividends, or an interest/income mutual fund for diversification. Then make the lease payments out of that investment until the lease is done. Some risk, of course, but historically pretty reasonable.

    We’ve never leased before, and normally keep vehicles a decade or more, but I expect the EV/hybrid market to be very much expanded and improved by the time the lease is up. And in this scheme, there’d be no pressure to move on it by the end of the year. Of course, much is dependent on the availability and discounting of the remaining 2019’s and soon-to-be 2020’s.

    Anyway, interest has been piqued - thanks!
     
  16. Lowell_Greenberg

    Lowell_Greenberg Active Member

    It plays somewhat into the hands of those who want to burn every bit of coal on the face of the Earth- to force the issue of loopholes if and where they exist. And it is certain these government rebate/tax credit programs were thought through enough to anticipate abuse.

    As for depreciation, as you know, EVs are not your best bet. So an intelligent decision on an EV needs to factor in reliability, driving needs and a bit of guesswork regarding future gas prices.

    However, in a few years it may be the reverse, with ICE vehicles steeply declining in value. Yea!!!

    Sent from my SM-G975U using Tapatalk
     
  17. sniwallof

    sniwallof Active Member

    I see the appearance problem with loopholes, but there is another way to see it too. Most PHEVs EVs do not have an alternative lower cost for those who do not qualify for the Fed Tax break. While less than ideal, most lightly used PHEVs/EVs sell for less with the $7.5k off the top (thus, the inflated depreciation reports), which gives those not eligible a roughly equivalent chance at the discount for a possibly relatively low mileage second hand EV / PHEV. (as I said, less than ideal, it does seem unfair that everyone can not benefit from the initial $7.5k discount).

    In most cases, a person hopping from EV to EV loses at least $8k (there are some exceptions, some are real, some omit paying fees and taxes the second time, and paying back pro-rated incentives to their state) so the individuals are generally not profiting, and it does put more EVs PHEVs on the roads.
     
    Last edited: Sep 1, 2019
  18. css28

    css28 Active Member

    Given that the tax credit's been in effect for over nine years, hardly an original thought experiment.
     
    Louis Nisenbaum likes this.
  19. Lowell_Greenberg

    Lowell_Greenberg Active Member

    I absolutely agree that it is unfair that not everyone who purchases a qualifying vehicle receives the full federal tax break, depending instead on income/overall tax liability. This is especially true for people in the lower income tax brackets. It should probably be a rebate instead.

    Sent from my SM-G975U using Tapatalk
     
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