If the purchaser of a motor vehicle deals with a vehicle as part of the transaction, they can deduct the value of the exchanged vehicle from the sale price. To be eligible, the exchange must be made as part of the same sales transaction and transferred directly to the seller. The tax is calculated on the remaining selling price of the vehicle purchased. If a borrower/buyer sells the motor vehicle to the lender upon entering into a financing contract (option three), the borrower/buyer cannot use that motor vehicle as a trade-in deduction in the transaction to purchase another motor vehicle. The borrower or buyer does not exchange the original motor vehicle directly for the purchase of a new motor vehicle from the seller of a new motor vehicle. If the seller of the new motor vehicle purchases the original motor vehicle from the lender, a separate transaction has taken place and it is not granted on a tax deduction in payment. If a buyer gives a motor vehicle as payment upon the purchase of two or more motor vehicles from the same seller and the value of the motor vehicle given in payment is greater than any individual price of a motor vehicle to be purchased, the trade-in value may be divided between purchases to allow for full credit for the exchange. The trade-in deduction is permitted for the purchaser`s vehicle donated as payment when purchasing a motor vehicle shipped to a dealership. Again, the authorized exchange must be made as part of the same sale transaction. No tax is payable when a buyer exchanges a higher-value motor vehicle for a lower-value motor vehicle, commonly referred to as an exchange. When Sally trades her $30,000 motor vehicle for a $20,000 vehicle in a transaction with a private party.
Sally doesn`t owe a car tax because an exchange has taken place. The other party has acted and must pay motor vehicle tax on the difference of $10,000. Note that when calculating the motor vehicle tax due in a private transaction that is a trade-in, standard procedures for the deemed value (SPV) may apply to determine the taxpayer of the selling vehicle, but not to determine the value of the vehicle given as payment. A purchaser may exchange more than one motor vehicle when purchasing another motor vehicle or with a motor vehicle when purchasing more than one motor vehicle. For example, Sally buys a $20,000 vehicle from the dealership and trades in her $30,000 vehicle at the dealership. Sally does not owe any car sales tax on her vehicle business. The only states that currently do NOT provide a tax credit as of February 2019 are: Even the purchaser (i.e., the lessee) of a motor vehicle cannot exchange a vehicle they are leasing because they are not the holder of title to the leased vehicle. Sometimes a borrower/buyer enters into a financing contract in which, when the contract is concluded, three options are available for the ownership of the motor vehicle: the buyer can only make this deduction through the sale of a motor vehicle. Any other property, such as a boat, plane, livestock, etc., that a seller takes in the trade cannot be deducted from the selling price for motor vehicle tax purposes. The value of the vehicle exchange is not equity, but the value of the vehicle exchanged.
For example, if your new car costs $20,000 and you have a trade-in worth $5,000, you only have to pay sales tax on $15,000. If your sales tax rate is 10%, you will see savings of $500 in this particular case. Motor vehicle tax cannot be reduced by the proceeds of a sale of a private party or the sale to another dealer of a motor vehicle that could have been used as an exchange. For example, Jim buys a $25,000 vehicle and trades in his $10,000 vehicle. Jim owes an auto tax on the $15,000 difference. The following states currently allow a tax credit on your exchange as of January 2011: If you live in one of these states, you have a greater incentive to sell your car to a private party. * Potential savings are based on a $5,000 exchange – the seller must describe the first retake in section 36 of Form 130-U, Texas Title Application and/or Registration (PDF). The additional exchanges for this transaction are listed in box 37. The seller must provide the exchange description on each Form 130-U (PDF) and refer to the other`s forms to clarify transactions. The seller must reference the tax documents in the same way. California District of Columbia Hawaii Kentucky Michigan Montana Virginia. .