When buying a new car, a lot of factors go into determining whether you might be better off trading in your old car at the same time, or selling the used car yourself and applying the cash to your new vehicle purchase.One costly component of the transaction that many car-shoppers fail to consider when making this decision is the impact of sales tax.
In many U.S. states, the sales tax a new car buyer pays on his vehicle purchase is not calculated on the overall sticker price of the car, nor even on the final cash price paid for that new vehicle. Rather, sales tax is paid on the price that remains after the buyer’s trade-in has been figured into the deal – a value known as “trade difference.”
(Find out right now what your used car is worth as a trade-in!)
In other words, if you are buying a $20,000 new car and getting $5,000 for your trade, you would pay sales tax only on $15,000, and not on the $20,000 that the new car actually costs.
For a hypothetical example, a car-shopper buying that $20,000 new vehicle in Liberty, Clay County, Mo., would pay $1,470 in state and local sales taxes on the total purchase price. But the sales tax would be only $1,102.50 after receiving $5,000 in credit for his trade-in.
The difference here is only a few hundred dollars, but it becomes much more as the price of your chosen new car escalates, or the value of the car you’re trading increases, lowering your trade difference. For instance, trading-in a $10,000 used car on a $40,000 new truck at a Liberty, Mo., dealership would result in taxes of $2,205 rather than $2,940 – a savings of $735. And trading-in a $20,000 used Mercedes on an $80,000 new one in the city of St. Louis, on the other side of Missouri, results in state and local taxes of $4,944.60 instead of $6,592.80, saving the consumer $1,648.20.
This is valuable information to know when deciding whether to trade in that old car or sell it yourself, because if you can’t sell your old car privately for its trade-in value plus the amount that your trade can save you in taxes, then you’re losing money.
Find out right now what your trade-in is worth, and start deciding whether it’s smarter to trade your old car than to sell it yourself.
Tags: Car trade-in