Capital for the LHPH Industry

Creating financial flexibility one dealer at a time

Why Should You Switch to Operating Lease Accounting?

Eyo Toe | January 18, 2021

LHPH Capital is a firm believer that the leasing model is beneficial for all stakeholders involved. If you are a current BHPH dealer looking to convert to a leasing program, you should expect some changes in what your cash flows will look like from an accounting standpoint. Leasing uses operating lease accounting which allows you to receive the many tax benefits of LHPH depreciation on your portfolio and other federal income tax benefits. Because there is no need for a related finance company, you will save money on administrative fees and reap the benefits of tax deferment.


Recognizing Non-Cash Items in Your Financial Statements

Eyo Toe | January 13, 2021

How can you identify actual cash flow in your financial statements? Chad Martin, Fractional CFO and Consultant at Martin Consulting and Management, talks about some of the non-cash items that are part of financial statements and some useful tips on accounting for the differences in cash and non-cash items


Gearing Up for Tax Return Season

Eyo Toe | December 15, 2020

Person changing gear in a car

2020 is quickly coming to an end and you all know what that means…  Tax Return Season is right around the corner!  It is also possible that tax return season may coincide with additional federal stimulus this year which could help many more subprime customers get into the reliable transportation they need right now.

Is your LHPH program capitalized and ready to handle the influx of new customers heading your way in just a couple months?

Give us a call at (619) 222-9990 extension 1010 and let’s discuss how to maximize your 2021 tax season.


Katz, Sapper & Miller Breakdown the Possible Tax Implications of the Presidential Election

Trevor Watson | October 28, 2020

https://www.ksmcpa.com/blog/presidential-election-impact-on-the-national-tax-landscape

Checkout this article from Katz, Sapper & Miller (KSM) regarding the potential changes in the tax landscape depending on the results of the upcoming election.  One of the primary benefits dealers who transition to Lease-Here, Pay-Here cite for their conversion to leasing is the tax benefits from the depreciation.  Leasing can have a tremendous impact by offsetting income with the depreciation from your lease portfolio.  This is something that could be of importance for certain dealers in the years ahead.


LHPH: Bonus Depreciation

Eyo Toe & Kevin Londerholm  |  September 22, 2020

In the used car leasing model, the LHPH dealer becomes the lessor with ownership of the assets they lease to the consumer and retain in their portfolio.  This opens new opportunities for the dealership from a tax perspective.  The ability to depreciate the assets in your LHPH portfolio over time and report those losses on your Federal Income Tax in the form of a Net Operating Loss (NOL) is another significant advantage of LHPH.  These NOL’s can allow a LHPH dealer to reduce their annual income tax liability significantly.  While this has always been a compelling reason to migrate to LHPH, the new tax law in 2018 served to compound the benefits of leasing.

Whether you decide to use the bonus depreciation or follow straight-line depreciation standards, either model provides strong advantages over a BHPH portfolio. The 2018 Tax Cut and Jobs Act provided LHPH dealers with the ability to utilize 100% bonus depreciation of used vehicle assets in the first year for leases originated between now and 2023. After that time, the 100% bonus depreciation will decrease by 20% per year. This new law provides another tax savings opportunity for the near future. Alternatively, lessors can follow straight-line depreciation and depreciate the entire value of the asset the first year the vehicle is leased. All up-front profit is deferred, which results in little or no tax liability for the remaining years of the lease

Either way, there are strong tax advantages to a LHPH program for at least the next four years.  It is important to work with your CPA to forecast the impact of bonus and standard depreciation on your current and future tax liability as you assess the right LHPH structure for your business.


BHPH to LHPH: Make the Switch!

Eyo Toe & Kevin Londerholm  |  September 14, 2020

Watch below as Terry Bowdler, Founder & CEO of LHPH Capital, explains the Sales Tax Advantage that LHPH has over the BHPH model.  With traditional Buy Here Pay Here lending on retail installment sales contracts (RISC), state sales tax is paid at the time of the transaction on the sales price of the vehicle. This means the dealer uses the entire down payment for sales tax and is immediately cash-negative at the inception of the deal.

For LHPH deals in “pay-as-you-go” states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment). Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease. With this structure, the dealer can pay sales tax over time, rather than all up front. This helps dealers start loans on a cash positive basis, requiring less capital to growth the business as well as better unit economics throughout the life of the lease.


Lease Accounting

Kevin Londerholm  |  June 11, 2020

One element that every dealer entering the LHPH business should be aware of is accounting.  Lease accounting is different than what most dealers are accustomed to from their BHPH or retail experience.  However, proper lease accounting will allow the dealer to maximize the tax benefits afforded to them from the used car lease product.

Using a LHPH compatible software (DMS) will help with the proper reporting, however, retaining an accounting firm with consumer leasing expertise is highly advised.  They can assist you with transitioning your current books and advise you on the best way to optimize your standard and bonus depreciation for tax purposes.  One such firm with extensive consumer leasing experience to consider is Katz, Sapper & Miller.  See Mike North explain the classification of a lease in the video from our LHPH Summit below:


Lease Here Pay Here Programs

Kevin Londerholm  |  May 18, 2020

Shifting to or launching a new LHPH program allows dealers to overcome the affordability gap for subprime customers, creates new profit centers, offers a superior competitive advantage, and allows the dealer principal to defer tax liability for years to come, among other benefits.  All thanks to the unique aspects of the lease.

See below as Stan, one of our top LHPH Dealers, describes how he decided that he wanted to be a LHPH Dealer and largely leave retail sales behind.

 


Federal Income Tax Advantage of Lease-Here, Pay-Here

Trevor Watson | May 14, 2020

As opposed to a Buy-Here, Pay-Here (BHPH) model, with a Lease-Here, Pay-Here (LHPH) program, the dealer becomes the lessor with ownership of the assets (the vehicles) they lease to the consumer and retain in their portfolio. This opens new opportunities for the dealership from a tax perspective.

The ability to depreciate the assets in your LHPH portfolio over time and report those losses on your Federal Income Tax in the form of a Net Operating Loss (NOL) is another significant advantage of LHPH. These NOL’s can allow a LHPH dealer to reduce their annual income tax liability, sometimes to zero, depending on the size of their portfolio. While this has always been a compelling reason to migrate to LHPH, the new tax law in 2018 served to compound this benefit.

The 2018 Tax Cut and Jobs Act provided LHPH dealers with the ability to utilize 100% Bonus Depreciation of used vehicle assets in the first year for leases originated between now and 2023. After that time, the 100% bonus depreciation will decrease by 20% per year. This new law dramatically increased the tax savings opportunity for LHPH for the next decade.

As an example of just how impactful this can be; imagine you start leasing 15 cars a month for the next twelve months and the average Actual Cash Value (ACV) of the vehicles you lease is $7,000.  If you chose to take the Bonus Depreciation on your taxes for that year, you would have the option to depreciate all 180 vehicles in your portfolio the full ACV value of $7,000 each.  This results in a total deduction of $1,260,000 against whatever profits you made from your dealership that year.  That represents an incredible opportunity for the dealer principal to defer tax liability, even in the first year of operation.

Alternatively, lessors can still follow the more traditional straight-line depreciation and depreciate the value of the vehicles over the life of the lease and spread that impact over time, if that is what your CPA recommends.  You may not need $1.2MM in depreciation year one when $250,000, or 20% of the $1.2MM, fits your tax needs better and you can save the rest of the depreciation for future years.  Of course, if you continue to build your portfolio, you will have even more depreciation to work with in the following years.  Often, the depreciation piece even makes dealers who do not reside in “pay-as-you-go” states opt for LHPH over BHPH once they pencil it out.

Either way, there are strong advantages to a LHPH program for tax purposes. It is important to work with your CPA to forecast the impact of bonus and standard depreciation on your current and future tax liability as you assess the right LHPH structure for your business.

Learn more about all of the benefits of LHPH by downloading our E-Book here!

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LHPH Sales Tax Advantage

Kevin Londerholm  |  May 7, 2020

Are you a BHPH Dealer that is tired of paying state sales tax at the time of the transaction on the sales price of the vehicle?  Are you tired of using the entire down payment for sales tax?  Are you tired of paying state sales tax up-front and immediately being cash-negative at the start of the deal?

It is time you made the switch to LHPH!

For lease-here pay-here dealers in “pay-as-you-go” states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment).  Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease.  With this structure, LHPH dealers can be cash-positive from Day 1.

Watch as Mike North, Partner at the Accounting Firm Katz, Sapper & Miller explains that this sales tax pain that BHPH dealers feel is the the #1 reason they make the switch to LHPH.

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