How Do You Save On Sales Tax When Trading In A Car?

Does a trade in count as a down payment?

You certainly can use your trade-in as a down payment.

In fact, it’s highly recommended you do so if you’re looking to save money on a new car loan and have equity in your trade-in..

Do you save taxes when you trade in a car?

There’s another financial benefit to trading in your vehicle, on top of reducing the cost of your new car and saving you money on interest. You’ll save on taxes, too. Instead of being taxed on $30,000, you’ll only be charged tax on the $23,000.

How is tax calculated on a vehicle trade in?

The new car cost and trade value will come off the sales contract for the car deal. For example, if you are buying a new car for $25,000 and the dealer is giving you $10,000 for your trade, you will pay sales tax on the $15,000 difference. If sales tax in your state is 8 percent, the tax would be $1,200.

Do you charge sales tax before or after a discount?

Because discounts are generally offered directly by the retailer and reduce the amount of the sales price and the cash received by the retailer, the sales tax applies to the price after the discount is applied.

What is the tax benefit of trading in a car?

Many states offer a trade-in tax exemption that lowers the amount of sales tax you’ll pay in the trade. If, for example, you and the dealer negotiate a $20,000 purchase price — and you trade in a vehicle for $5,000 — the trade-in value is deducted from the new car’s cost and you’ll only be taxed on $15,000.