Is a vehicle trade-in amount taxable?

Question

If I sell my car for $6,500 that amount is taxed. What about if I trade it in to buy a new car and the dealer puts it towards the down payment for $6,500? Is that taxable?

Answer 1

The above poster hit it on the nose! Most states offer tax credit, however not all. Great job!

Answer 2

Most states do allow a "sales tax deduction for trade-in", but some do not. If you do live in a state that allows this, that $6500 trade-in would be deducted from your new car purchase before sales tax is calculated (e.g. you buy a new car for $20,000 - $6500 trade-in = you will be charged sales tax on $13,500).

There's an explanation at the bottom of this page:
http://www.industrial-bank.com/calculators/auto_loan.html

"Currently California, the District of Columbia, Hawaii, Maryland, Michigan allow no deductions for trade-ins when calculating sales tax. In addition, Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax on autos."

So basically, by trading in your car to a dealership for a new one, you're getting an extra 5-10% (or whatever sales tax is in your area) on your vehicle trade-in. However, I don't think it'd be hard to gain even more by selling it privately. Dealerships are notorious for low-balling on trade-ins.

Answer 3

you will pay sales tax on the full purchase price of the new vehicle but the trade in credit you received for you old car will not be taxed as far as income tax goes if that's what you mean