Should I pay tax if I buy a used car from a private party?

Question

I am selling my used car, however, one buyer wanted me to gift the car saying in this way he doesn't have to pay tax? Is this true or I am getting scammed?

If I do him a favour by reporting a lower sell price, I do that through Bill of Sale?

Answer 1

Real simple. Do not gift a car to a stranger. If your transaction happens to get audited, then you might be subject to a penalty as it will be clear you do not know the person and would not really be giving them a car.
As a funny side note, do you think the many people that work at the DMV and deal with thousands of transactions per day never thought of this? Of course they did.
Most states audit sales prices compared to market value, so if a 10k car is sold for 3k or gifted to a person with a different last name at a different address, expect an audit letter.

You could write the bill of sale for 80% of the actual price. Get a certified check for the 80% and cash for the 20%. Write a bill of sale for the 80% amount and take cash for the other 20%.

Answer 2

Used Car Tax

Answer 3

Yes, you are required to pay tax on a car emanating from a Private Seller. These taxes are paid at the DMV when you switch the title over to your name.

It is illegal no to pay these taxes.

What he is referring to is that he's trying to save a little money by asking you the favor of saying you sold it to him for less money than you actually did.

Whether HE pays taxes for the car or not is not going to affect YOU in any way. Do the guy a favor and say you sold it to him for $5000 instead of $10,000 that's all.

But in the end... it's up to you. That's not Kosher either.

.

Answer 4

I'm not sure I understand your question but in Arkansas a person has to pay sales tax on any car that they buy that costs over $2,500. When a person buys a different car they have to pay taxes on it but gets to deduct the price they get for their vehicle if they trade it in or sell it to an individual. To keep people honest a person couldn't claim the vehicle was a gift and get out of paying taxes even if it was a gift. The DMV goes by the book on the fair market value to determine the tax. The taxes are collected when you register the vehicle and get licenses. I would be suspicious of the request...

Answer 5

This Site Might Help You.

RE:
Should I pay tax if I buy a used car from a private party?
I am selling my used car, however, one buyer wanted me to gift the car saying in this way he doesn't have to pay tax? Is this true or I am getting scammed?

Answer 6

depending on what the cars value is, that could come back to in the end depending on your state laws. if you have a 5000 dollar car and you put it out as a gift, the bmv has to keep track of this. in some states they will apply taxes to a gift after it exceeds a certain amount of money. you may receive a tax form at the end of the year from doing that. the government is going to get theirs, just remember that. now if the car is only worth 500 dollars than that is an entirely different story. they wont haggle over that. but something that cheap, the taxes shouldn't be that much anyhow. i wouldn't do it, what are you getting out of it??? you will get in a load of trouble if found out about lying, tax fraud, tax evasion. weigh the consequences

Answer 7

It is true, if the car is gifted to someone, there is not tax. But a word of caution. They can be audited, and so can you if the state questions the gifting. Personally, I wouldn't risk it, but it is up to you. A reasonable lower price may avoid an audit, but again it is your call.

Answer 8

first of all hes gonna pay taxs anyway when he gets a tag
what a cheap buyer
dont sign as gift. it may b illeagle where u live but purchase price could be stated lower than orginally agreed upon . but the dmv knows what the car is worth anyway.. u should state " as is" when making a bill of sale !!

Answer 9

You are allowed to "gift" up to $1,000,000 in your lifetime... but in the case of a stranger, I normally allow them to report a lower purchase price so they can save on the amount of tax they pay. For example, I sold a car for $4k once but I allowed them to put down $2k so they saved about $200.

Answer 10

thanks to each and every one of you for the answers!