[Fahrvergnügen]

I recently traded in a car I was financing on a less expensive car and the trade-in value was actually more than the new car's total price... since this took place in Indiana, I paid no sales tax on the new car... woohoo

This got me thinking though... Let's say I go and finance a car ($80k) for 5 years with no trade in and (to keep it simple) put no money down or pay the sales tax,,, i.e. roll everything into a monthly payment and amortize.

Then, let's say a year or so down the line I get a trade-in value of $60k for the original car and trade it in on a $60k new car - but now I am not paying any sales tax on the new car because of my trade-in.

My question is, when and who actually pays the sales tax on the DIFFERENCE between the original $80k and whatever the dealer sells the car for (say $65k)? I would have only paid a small portion due to the amortization of my original loan and then the next owner pays sales tax on the $65k (assuming he doesn't have a trade-in) - where does the sales tax go for the $15k difference?

[David70]

How I think it works -

If you finance the car the sales tax is paid to the state at the time of purchase and then you slowly start paying the financing company back.

You trade it in on a new car you pay the sales tax on the difference in the two values (depending on the state) which in your case above was $0.

The dealer sells the used car and the new owner pays the tax on the value he pays for it.

Then if you sell trade in a car with a value of $50k and buy one for $30k you don't pay tax on it because you already paid the tax on the $50k car so hardly a "win".

[Draper]

You're paying the tax either way.

Think of it this way. You buy a car for $80k, which will be worth $60k in 2 years. You roll the tax into the loan. Now instead of an $80k loan, you have an $85k loan. This will result in higher payments over those 2 years, plus a higher payoff after 2 years.

So bottom line, between the higher loan payoff and increased monthly payments over 2 years, you're paying the full tax amount on the $80k car.

One way you can actually avoid some of the sales tax (in most states) is by leasing. Using the above example, you'd pay sales tax on the depreciation of $20k and not the entire $80k value of the vehicle.

[Fahrvergnügen]

Originally Posted by David70

How I think it works -

If you finance the car the sales tax is paid to the state at the time of purchase and then you slowly start paying the financing company back.

You trade it in on a new car you pay the sales tax on the difference in the two values (depending on the state) which in your case above was $0.

The dealer sells the used car and the new owner pays the tax on the value he pays for it.

Then if you sell trade in a car with a value of $50k and buy one for $30k you don't pay tax on it because you already paid the tax on the $50k car so hardly a "win".

Originally Posted by Draper

You're paying the tax either way.

Think of it this way. You buy a car for $80k, which will be worth $60k in 2 years. You roll the tax into the loan. Now instead of an $80k loan, you have an $85k loan. This will result in higher payments over those 2 years, plus a higher payoff after 2 years.

So bottom line, between the higher loan payoff and increased monthly payments over 2 years, you're paying the full tax amount on the $80k car.

One way you can actually avoid some of the sales tax (in most states) is by leasing. Using the above example, you'd pay sales tax on the depreciation of $20k and not the entire $80k value of the vehicle.

Thanks, makes sense.