The truth about my $78 per month Tesla

What's up you guys, it's Graham here. So I rarely ever make follow-up videos like this, but given the amount of views last Tesla video got and also a lot of the misunderstandings with that video when it comes to tax write-offs, how they're applied, and how they work, I figured it was worth it for me to make this video so I can go into the subject a little bit more and give a little bit more detail that a lot of people said were missing. Because wow, I had no idea that that many people would go and see the video.

So let's not waste any time, and I will get right into this. Now, I would say that largely the biggest complaint of that video is that people felt it was clickbait for two reasons. Number one is that I only went over the first year ownership numbers of that car, and that is completely my fault. I should have gone into subsequent years: the second, third, fourth, and fifth, and so on. I honestly thought it was too nuanced of a topic to get into for YouTube, but evidently, I was very, very, very wrong. People want to hear about that, so of course I'm going to address that in this video.

Secondly, a lot of the tax write-offs that I use that work for me will not work for everybody watching, which is where I feel like a lot of the confusion came from. Oh, and number three, at least a thousand people wanted to see my dad react more to things, so that's at the end of the video. I got his reaction to driving the Tesla for the first time, so if you guys want to see that, that's at the very end of the video.

So first, here are the numbers with regards to the Tesla, starting from the very beginning and running through the lifetime of the loan like everyone is asking for, and I will go into great detail about all of this and also why I chose to get a loan on the car and how that was better than paying for the car in cash.

Okay, so here we go. In the first year, this was a $40,000 optioned Tesla Model 3. I was able to finance 100% of the car over 72 months at a 3.75 percent interest rate. My only out-of-pocket cost to actually go and buy this car was taxes, license, and registration that came to four thousand four hundred and thirty-seven dollars, and of course the infamous one cent. After that, I have the six hundred and forty dollar per month car payment.

Now, just to be very clear, this is the amount that's coming out of my bank account every single month, and one year, these payments add up to seven thousand six hundred and eighty dollars. So now, if we add up my total out-of-pocket cost of the car as well as twelve months of my car payment, that comes to a total out-of-pocket cost of twelve thousand one hundred and seventeen dollars and one cent. That is how much I am actually out-of-pocket in the first year.

But then, after that, I get back three thousand seven hundred and fifty dollars as a federal tax credit. This is money that I saved in 2020. When I go and file my taxes, I pay three thousand seven hundred and fifty dollars less. The good news is that anyone can get this credit as long as you pay more than that in federal income taxes. You'll get it all back. If you end up paying less in federal income taxes, then you won't get the full amount. Then we also have the $2,500 California EV rebate, in which they will give you back $2,500 for getting an electric vehicle.

This is not something that's just limited to California. There are several states out there that offer other programs like this. For instance, Colorado offers you $5,000 back for an EV rebate, so it depends on your state. But just go and check all of these online. So this means that in the first year I'm paying out of pocket twelve thousand one hundred and seventeen dollars and one cent, and I'm getting back six thousand two hundred and fifty dollars in federal and state credits. This brings down my total out-of-pocket cost to five thousand eight hundred and sixty-seven dollars and one cent in the first year.

Now, here's the part where a lot of people seem to get confused: is that the car was bought specifically for business use. For anyone wondering, or for anyone who thinks I just make up a business or something like that to claim the tax write-off, I've been self-employed and working as a real estate agent since 2008. I got the car specifically for business use to pick up clients, take them to properties, go to meetings, and show properties, and all of that other good real estate agent stuff. And also, of course, I make YouTube videos on the side, and the car's a way for me to diversify my content a little bit and also for personal branding. I think the Tesla is perfect for that.

Now, this means because it's for business use, I could depreciate the value of the car by about eight thousand two hundred dollars in the first year, which then lowers my taxable income by that amount. And by doing so, I then save on taxes. Using depreciation to lower your taxable income is a very, very common strategy that almost everyone who owns a business does. The IRS says that every item you buy for business use has a lifespan to it, and for automobiles, that lifespan is five years. This means that you can write off the value of your car over five years, and usually they'll allow you to take slightly more in the first year depending on your situation.

And again, if you're not self-employed and you don't actually have a legitimate real business, then you cannot get these write-offs. But because this car is for business use and because I got a loan on the car, I can write off the loan interest against my total taxable income, which in the first year works out to be one thousand four hundred and thirty-eight dollars. And remember, anytime you decide to finance something that's related to your business, that financing charge becomes a business expense, which lowers your taxable income and lowers the amount that you pay in taxes.

And finally, the four thousand four hundred and thirty-seven dollars in one cent that I paid in sales tax, license, and registration is also another tax write-off. This means that in the first year, I'm getting fourteen thousand seventy-five dollars as a total tax write-off, which saves me about four thousand nine hundred and twenty-six dollars from my tax bill.

Now, of course, here's the fine print when I say this: if you are in a lower tax bracket and you live in a state without really high income tax like California, your own specific numbers are going to be different than mine. This is for my own specific situation, and depending on who you are and what you do and what your income is, your numbers are probably going to be a bit different than mine.

So this means that even though I'm paying six hundred and forty dollars per month after all the rebates and incentives, it brings it down to five thousand seven hundred and sixty-seven dollars. And then I'm saving an additional four thousand nine hundred and twenty-six dollars on my taxes, which brings us down to the net cost of about seventy-eight dollars and thirty-nine cents per month when you spread that over the cost of the first year.

Now when it comes to doing business tax write-offs like this, this does not mean my literal payment every single month is seventy-eight dollars. In fact, it's pretty much quite the opposite of that. I still pay my six hundred and forty dollars per month to own the car, but when I go and file my tax return the following year, that is where I save the money that I would have ordinarily spent. That then brings down the overall cost of the car. Imagine it almost like I'm saying I pay six hundred and forty dollars a month for the car, but I get five hundred and eighty dollars back in savings.

So even though I'm out-of-pocket six hundred and forty dollars per month, the amount of money that I save offsets a lot of that cost. And of course, here's the part that everyone wanted, and that is the ownership cost for the second, third, fourth, and fifth year. So this is what you've been waiting for, and here are the numbers.

Yes, during the second year I still pay six hundred and forty dollars per month for my car payment. This continues for the lifetime of the loan until the car is paid off. My payment is unchanged: six hundred and forty dollars per month every single month. Now to keep things simple here, like I mentioned, you can write off the value of the car over five years. After the first year, this means that I can enjoy on average the seven thousand nine hundred and fifty dollar write-off over the remaining four years.

And also during the second year, I'm continuing to pay interest on the loan balance, which works out to be eleven hundred and sixty-five dollars. Like the first year, this is another write-off. So now if we add up the interest I pay in the second year and depreciation, that works out to be about an eight thousand eight hundred and forty-five dollar tax write-off. Now in my tax bracket, that'll save me about thirty-one hundred dollars in taxes.

So then when you subtract that thirty-one hundred off of the seven thousand six hundred and eighty, that brings down my total car payment now net to three hundred and eighty-two dollars per month. However, what most people don't remember is that even though I'm paying six hundred and forty dollars per month as a loan payment, only about a hundred dollars of that is actual interest, which means that the majority of that car payment actually goes towards equity in the sense of paying down that loan for that asset.

So technically now I'm paying a net out-of-pocket expense of three hundred and eighty-two dollars to own the car, but I'm getting back about five hundred and twenty dollars per month extra in asset value by paying down the loan on the Tesla. So that calculation continues for the five remaining years until by then I'm basically paying down the rest of the car. Almost all of it goes towards principal, and by then the car is paid off and owned in full.

So pretty much the net cost to me after the first year is pretty much nothing except for the normal depreciation of the car, which is really offset by all of my tax savings. And also I'm not factoring in the cost of gas savings, given the cost of electricity here in California is about one-fourth the cost of gas, so I figured I would just leave that out. That doesn't even need to be included in here, but that is consideration as well.

Now of course, when it comes to this, here are the nuanced details and fine print that I think I should mention. The first thing I want to get out of the way is that none of this is sponsored by Tesla. I wish they were paying me to go and make videos about them. I just love talking about money; I love talking about finance; I love talking about tax write-offs. And even if it doesn't apply to everyone watching, I think it at least gets it in their head that these are things that they could do, and these are some of the benefits of being self-employed.

Now second, if I go and sell the car, I will have to pay what's called depreciation recapture. Basically, since I depreciated the value of the car on paper, if I go and sell the car for an amount above what I depreciated the car, I'll have to pay taxes on that different amount as though it's ordinary earned income. However, my intention with this car is just to never sell it. I just want to drive this car until the wheels fall off, whether that be 10 or 20 years from now, whatever that might be. This car for me is just a car—I could see myself keeping it for just a very, very, very long time without selling it.

So for me, I'm not really worried about depreciation recapture or anything like this. But yes, if I did go and sell it, I would have to pay back some of the tax savings that I got as though it's ordinary income. I also chose to finance the car 100% and get a loan on it instead of paying the car outright in cash because I knew the interest would be a tax write-off against my income, and I can use all the tax write-offs that I can get. And also, I know I can get a higher than 3.75 percent interest investing in real estate or index funds.

So basically, the less money I have tied up in the car, the more money that I will make net at the end of the day. I know a lot of people thought I got a loan because I'm some stupid millennial who just buys a car that he can't afford. But all I'm saying is this: is that when you really understand leverage, it's the financially smart move to get a loan on the car and invest the difference than it is just to pay out the car outright in cash.

And finally, I'd like to address everyone that says the insurance cost of the Model 3 is like really high because it's a Tesla. This is not the case. The way insurance companies work is that they base their insurance cost off the MSRP of the car. So if you're going and buying a Model S, and that has a $100,000 MSRP, that Model S is going to be as expensive to insure as just about any other $100,000 car. Same with the Model X.

Even if you're buying a used car for half the price, they're still going to insure it as though you're driving a hundred thousand dollar car. With the Model 3, it's the same to insure as any other forty thousand dollar car. And for anyone who wants to know this, I pay two hundred and fifteen dollars per month for full coverage on my Tesla Model 3, combined with my Lotus Exige S 240 that just has a super high deductible. But besides that, clean record, no accidents, knock on steel, no speeding tickets, no nothing. Twenty-eight years old, male. Anyway, that’s how much I pay.

Now remember, when it comes to running these numbers, if you don't have an actual legit business, then you cannot enjoy any of these write-offs. Unfortunately, I really made that video from my own perspective when it comes to me running my own numbers on what I'm buying. I didn't make that video so much as a how-to guide for how anyone watching can get a $78 per month Tesla. This really works because I'm in a high tax bracket in a high income tax state with my own business, and I bought the car for business use.

This is not going to work for someone with a W-2 salary job who can't enjoy the tax write-offs of running their own business. If you actually do run your own business, then I encourage you to look into this further, to speak with your CPA, and see if this might work for you. But again, this was just for my own specific situation, and I'm blown away at how many views that video got—blown away!

But when it comes to tax write-offs, I mean, this is just how it works. You spend money, and that's reduced by your total taxable income, which saves you the money in taxes. So you spend money to then get it back. This does not mean it's a net $78 a month cost. This does not mean that anyone can go and do this. It's very nuanced, but if you really understand the tax code and how it works, you'll understand that a lot of this math is not just millennial math. I mean, these are real business tax write-offs.

And finally, now for the moment everyone has been waiting for, and that is for my dad to react to more things. Here is his reaction to driving the Tesla for the very first time.

Okay, let it go here. Okay, oh, oh Graham, I'm telling you, I can't believe you're putting me in this car, and you're making you let me drive it! I thought we were just gonna go and take a little spin and get a coffee, and all we can still do that. Okay, we'll get it.

Okay, we’ll get it something or, yes, so you're the first person to actually drive this car ‘cause it's mean. Okay, yeah, I have no clue what to do. I've sat in these at the showroom. Yes, oh wow, look at how busy! It's totally cool! So it's—it on? Press the gas! Holy crap, Graham! This rides incredibly!

Yeah, oh wow, the steering! Let off on the gas a little bit so you'll see it's regenerative braking. Oh no, you don't, you don't need to even press the brake; you just take your foot off the gas. Oh, all right, let's go! It's that constant, it's instant! Yeah, I mean, and there's no sound! No, there's nothing!

Take your hand off the wheel! Don't do anything! Self-driving! Put off the gas! Everything's—watch this! Oh, I'm getting nervous, Graham! I'm getting real! Oh, watch it! Don’t do anything! Oh, oh, don’t do the same! No, no! I’m gonna go up here! Watch this!

Yeah, I’ve never experienced this before that a car is being able to do this! This is—wow! People say your reaction! No, I don't have! I’ll say, me like what, five thousand people watched it! Ten dozen? I don’t know, a thousand, over a million people! Oh, everyone wanted more of your react!

Okay, well look, I uh, more than they like me. I look, I all I can say is, you know, I'd support Graham 150 percent whatever he does, and I 'cause I know it's a hundred percent authentic and real. Now, let's say thanks for watching that video. He just told me the number. I’m a very private person as you well—you don’t know!

But anyways, that’s my shout-out to all of Graham's followers and fans! That’s all I can say for now, but I am having right now—I’m just in the moment right now! I’m having the best time! You know what? I've got a three-part comic series coming out. It's called Trianed. Issue one, two, and three, are three—it's about to come out! If you wanted to—it’s already on Amazon.com!

It's a great story! Everybody loves zombies! Okay, everybody! And say it’s not sponsored, because it’s not! No, no, no! This is, uh, no Elon Musk is not in on this! He’s too busy in the courts right now! But anyways, yeah, this is great! And it's not sponsored by any—this is this is real authentic stuff guys! Okay, that’s it! A good day!