How will you spend your tax refund? Some buy a used car

Tom Staperfenne, 34, isn’t ashamed to admit that he went out and spent most of his family’s income tax refund for 2017 right away. Nearly the entire $3,700. Gone. But don’t wrongly label Staperfenne as a spendthrift. Most of that money went toward the loan for a 2012 silver Ford Fusion that he bought used last summer for around $8,200.

“I paid it all off in one fell swoop and it was gone,” said Staperfenne, who lives in Grosse Pointe Woods, Mich., and teaches 10th grade economics at University Prep Academy High School, a charter school in Detroit.

Sure, many people love to dream about taking a great vacation with a four-figure tax refund or maybe about shopping for something special.

But the reality is that many of us are plunking tax refund cash back into our cars. Repairing the transmission. Fixing the brakes. My husband is thinking that maybe it’s time to get a set of new tires for his SUV.

Used car sales even ride on tax refund cash, according to Jonathan Smoke, chief economist for Cox Automotive.

Smoke said used vehicle sales are very much correlated with tax refunds.

“The peak period for used vehicle sales typically follows when tax refunds have been received by most households,” Smoke said.

“We expect the next two months to be the strongest two months of the year for used vehicle sales, given the confluence of an already strong trend combined with the delayed tax refund peak.”

Most federal income tax refunds are issued in less than 21 days after the return has been electronically filed, according to the IRS. Some returns that include errors or need further review take longer. See www.irs.gov for “Where’s My Refund?” to check your status.

But tax refunds for some earlier filers who filed returns beginning Jan. 29 didn’t arrive this year until late February or early March—a bit later than in the past.

A tax fraud prevention policy, which was enacted last year, specifically delays tax refunds for some early filers. By law, the Internal Revenue Service cannot issue refunds before mid-February for taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit.

This year, the IRS said taxpayers who claimed the Earned Income Tax Credit and the Additional Child Tax Credit began seeing refunds in bank accounts or on debit cards the week of Feb. 27. That is if they filed early in the season, chose direct deposit and there were no other issues with the tax return.

Financially challenged households eligible to receive such tax credits, Smoke said, are the income groups responsible for almost half of used car and truck sales. The tax refund makes a good down payment.

“March was good for both new and used sales,” Smoke said. “I suspect April will be best for used vehicle sales, though because of the timing for tax refunds.”

Tax refund cash is the biggest windfall that many families see in a year.

On average, taxpayers received $2,893 for federal income tax refunds through March 30, up about 0.5 percent from the same time a year ago, according to IRS statistics.

Nearly 73.4 million taxpayers received refunds thus far—down 1.1 percent from the same time a year ago. About 78 percent of returns filed by individuals so far generated refunds.

Big dollars rush through local economies across the country, considering that $212.3 billion was issued in individual income tax refunds nationwide through March 30.

Some states see more money than others. Texas ranked No. 1 for the largest average income tax refund in 2016 with an average refund of $3,133.

Other states rounding out the top five are Oklahoma, Louisiana, New York and Connecticut, based on research by SmartAsset.com.

States in the bottom five for average refund cash are: Montana, Wisconsin, Vermont, Oregon and Maine at the last spot with an average of $2,302.

A $2,500 or $3,000 income tax refund can be a sizable down payment, particularly on a used car.

When it comes to the used car market, one of the most popular vehicles sold in 2017 with a $3,000 down payment was a 2014 Nissan Rouge, according to Dealertrack data.

Putting $3,000 down last year meant an average payment of $327 a month on that vehicle, Smoke said.

Consumers who are struggling with bad credit might use a tax refund to flat out buy a super cheap used car, especially if they’re looking at a refund of $2,000 to $5,000.

“You see a lot of people coming in wanting to spend that kind of money,” said Tadd Milavec, used car sales manager for Genesis Auto Sales in Roseville, Mich.

For the $2,000 price range, someone might be able to get a 2004 Ford Taurus with around 145,000 miles. Other 2004 models might be in that price range with mileage of 90,000 to 170,000.

“Two thousand dollars doesn’t get you much these days,” Milavec said.

Milavec said lately he hasn’t seen as much tax-refund uptick as he had in the past. Maybe April will pick up but things seem slower when it comes to tax refunds, he said.

“The past couple of years, you could set your watch by it,” Milavec said.

Now, “you definitely get a boost but nothing crazy.”