Stupid Tax: Why buy new when you can buy used and save the difference?

We all end up paying plenty of taxes. But there’s one very expensive tax that’s easy to avoid: the Stupid Tax. Simply put, the Stupid Tax is the extra amount you spend every time you buy something new rather than used.

The principle behind the Stupid Tax is depreciation. As soon as you buy something new, it begins to depreciate in value. By far the largest chunk of that depreciation happens immediately after the purchase. If on the other hand, you decide to buy that same product used—even if it’s only a few weeks or months old—the price is dramatically lower because the original owner has already paid for the depreciation.

Depreciation applies to many of the most expensive things we buy, like cars, big screen TVs, exercise equipment, appliances, timeshare vacation properties, etc. You can buy any of these things used, in like-new condition at a HUGE discount off the original new price. For instance, a new car loses 20% to 30% of its value the moment it rolls off the dealer’s lot. In one example, a new car cost $20,000, but the same model of car purchased used with just five years on the clock only cost $10,000. When you factor in the total cost of ownership over the five years after purchase (including financing, operating costs, insurance, etc.), the new car cost $32,388 while the used car only cost $18,390 (source: edmunds.com).

Obviously, buying used is a great way to avoid paying the Stupid Tax. But an even smarter way is to make investments that appreciate, rather than purchases that depreciate. For example, if you take all the money you save by buying used and invest it in a revenue property, not only will that property appreciate over time, it will also earn you monthly rent. If you’d like some tips on how to use your existing mortgage to help you purchase a revenue property, call us today!

Kupina Mortgage Team