Inconsequential question in the Big Scheme, but something I'd like to know

[WillowTree]

I bought a new car yesterday. In the course of the endless, mind-numbing negotiations, the salesman was telling me that there's some sort of tax benefit to trading my old car in instead of selling it outright. I've never heard of that and I've had a fair number of cars, some traded in and some private party sales. Can't say I've ever been aware of such a tax involvement. Add to that I never believe anything that a car salesman says.

So, does anyone know if that's true and if so, where that benefit would make itself known?

Would genuinely appreciate any info anyone has about that. Thanks lots!

[elleng]

1. 'Most sales of used cars do not trigger tax liability.

This is because the vast majority of cars are used solely for personal use and are sold for far less than they cost orginally. However, whenever you sell a car at a profit, there is a possibility you will owe taxes on some or all of the proceeds. Even if you sell at a loss and owe no income taxes on the sale, you may still need to report the sale on your tax return. Make sure you know what type of sale you have and how to deal with it when tax time comes. . .

When you purchase a new or used car, you might trade in your current car for a discount on the purchase price. Even though you don't receive cash in this transaction, it is still considered a sale of your previous car for tax purposes. In the paperwork for the purchase, the dealership should set out the amount of the trade-in allowance. Use this amount as the sales price for your previous car in determining whether you have realized a taxable gain.

http://www.ehow.com/info_12029516_tax-implications-selling-used-car.html

[Hassin Bin Sober]

2. I believe he was talking about sales taxes.

Buy a car for $20,000 dollars with no trade and you pay sales taxes on the $20k.

Trade in a car worth $10,000 dollars you only pay sales taxes on the cash difference. Or $10,000 dollars in this case.

The dollars saved can be significant when trading a car worth higher amounts. That savings should be considered when thinking about selling your trade outright. In the above example, your tax savings are $900 dollars based on 9% sales taxes.

Based on my example, you would have to sell your trade car "on the street" for $10,900 to break even. Sometimes, it's less hassle and close enough dollar wise to trade.

A trade worth $1,000 dollars only saves you 90 bucks in sales tax.

[WillowTree]

3. Thanks a million!

That makes sense.