[JM322]

This isn’t bmw specific but had a question,

I recently went in to a dealership to kick the tires on a new car and get guesstimate on what my m3 is worth for idle curiosity. When I bought the m3 I didn’t trade in, and paid tax on the full cash value and financed the car.

If I trade it in now, I’d have little or no equity. Should the dealer deduct the full price of the car from the new purchase price or only the equity? Feels like if it’s only the equity then you just dinged on full taxes again. Or does everyone just pay off their car loan before trading in bc of this issue?

[Needsdecaf]

For sales tax purchases, your tax should be calculated off full trade in value if the car. What you receive, obviously, is trade in less what you owe.

It is not at all calculated off equity. State doesn’t care if you own it outright ir you’re upside down on a loan.

[mcsquared]

Right.

So, if the new car is 100k and they are giving you 50K for your car, then, the tax is calculated on 50k.

If you don't trade it, then, you pay the tax on 100K (as you did when you bought the m3).

[JM322]

Originally Posted by mcsquared

Right.

So, if the new car is 100k and they are giving you 50K for your car, then, the tax is calculated on 50k.

If you don't trade it, then, you pay the tax on 100K (as you did when you bought the m3).

Right but the key thing is that they’re not giving “me” the 50k for the car, they’re paying it to the financing co to pay off the loan. Seemed like there might have been some shenanigans they were trying for with not giving full credit but never got to that point.

The car was an amg wagon btw…cool and niche/weird but not as fun as the m3. Mercedes tech also feels enormously behind what we have on the bmws.

[mcsquared]

Originally Posted by JM322

Right but the key thing is that they’re not giving “me” the 50k for the car, they’re paying it to the financing co to pay off the loan. Seemed like there might have been some shenanigans they were trying for with not giving full credit but never got to that point.

The car was an amg wagon btw…cool and niche/weird but not as fun as the m3. Mercedes tech also feels enormously behind what we have on the bmws.

Dealers always try to play games. They are in it for the money...

Hence why I never send my wife to the stealership to have her car serviced. I take it.

[Needsdecaf]

Originally Posted by JM322

Right but the key thing is that they’re not giving “me” the 50k for the car, they’re paying it to the financing co to pay off the loan. Seemed like there might have been some shenanigans they were trying for with not giving full credit but never got to that point.

The car was an amg wagon btw…cool and niche/weird but not as fun as the m3. Mercedes tech also feels enormously behind what we have on the bmws.

You’re getting confused.

When you do the deal, they will line it all out. If they don’t they are breaking the law. It will say:

Trade in Valuation: $100k
Less payoff amount: $50k
Net trade in credit: $50k

On your tax paperwork it will say:
AMG Wagon purchase: $100k
Value of trade in: $100k
Tax owed: $0


Again, the tax deducts the GROSS amount of the car. The value of the trade in. The net to you is between you and the dealer. That’s irrelevant to the tax calculation.

[hubbahubba]

Good info. Thank you.

[ChemLab]

Yep. Easy. Whatever they value the car at is the amount you don't pay tax on when you buy the new car.

Now, you don't get any credit past the price of your new car. So, you can't trade a G Wagon in on a Civic and get extra credit on the deal because your trade is worth 5x the price of the new Civic. The tax credit stops at tax owed on the new car calculated tax.

[Draper]

Originally Posted by Needsdecaf

You’re getting confused.

When you do the deal, they will line it all out. If they don’t they are breaking the law. It will say:

Trade in Valuation: $100k
Less payoff amount: $50k
Net trade in credit: $50k

On your tax paperwork it will say:
AMG Wagon purchase: $100k
Value of trade in: $50k
Tax owed: $50k*your tax rate.

Again, the tax deducts the GROSS amount of the car. The value of the trade in. The net to you is between you and the dealer. That’s irrelevant to the tax calculation.

If he’s getting $100k for a trade in, and buying a $100k car there would be no tax due.

[ChemLab]

Correct.

[Needsdecaf]

Originally Posted by Draper

If he’s getting $100k for a trade in, and buying a $100k car there would be no tax due.

Yeah I did that while watching tv and screwed it up, lol. fixed it

[rak299]

Sales tax rules vary by state. In California, if you buy a $100,000 car and get $50,000 for your trade-in, you owe tax on $100,000

[mcsquared]

Originally Posted by rak299

Sales tax rules vary by state. In California, if you buy a $100,000 car and get $50,000 for your trade-in, you owe tax on $100,000

That, ummmm…, blows!

[rak299]

Originally Posted by mcsquared

That, ummmm…, blows!

The extra revenue allows the politicians to afford their BMWs

[mcsquared]

Originally Posted by rak299

The extra revenue allows the politicians to afford their BMWs

Gotta love politics!

[Needsdecaf]

Originally Posted by rak299

Sales tax rules vary by state. In California, if you buy a $100,000 car and get $50,000 for your trade-in, you owe tax on $100,000

Yup. But OP is in NY where this applies.

[rak299]

New York politicians also need to be able to afford BMWs

[OGM1]

Originally Posted by Needsdecaf

Yup. But OP is in NY where this applies.

Exactly. Your location says Texas. So I'm assuming you're explaining Texas tax law unless you know about NY


Here you go OP. Don't sue me if this isn't right - "Most dealerships allow individuals to trade in their old vehicle for a credit towards a new vehicle purchase. For example, if you trade in a car worth $3,000, you would have a $3,000 credit towards a new car. New York only taxes vehicles based on the price the buyer pays out-of-pocket. This means that you would not pay sales tax on the $3,000 that is deducted from your new vehicle price as a result of your trade-in credit."

https://www.caranddriver.com/researc...ax-calculator/

[BryanCO]

Honestly, it’s a bit surprising that this is a question/thread. Not sure how someone could buy and/or finance a vehicle and not know how this works. Else it’s a 30 sec Google search. Educate yourself (yes, this thread may help with that) or you will get taken advantage of.

[Needsdecaf]

Originally Posted by OGM1

Exactly. Your location says Texas. So I'm assuming you're explaining Texas tax law unless you know about NY


Here you go OP. Don't sue me if this isn't right - "Most dealerships allow individuals to trade in their old vehicle for a credit towards a new vehicle purchase. For example, if you trade in a car worth $3,000, you would have a $3,000 credit towards a new car. New York only taxes vehicles based on the price the buyer pays out-of-pocket. This means that you would not pay sales tax on the $3,000 that is deducted from your new vehicle price as a result of your trade-in credit."

https://www.caranddriver.com/researc...ax-calculator/

I was discussing how it works in NY. I lived there until the age of 35. I’m also aware it doesn’t work that way in every state.

[jimbethesda]

You owe money to a bank. How much is governed by your loan agreement. You pledged YOUR car as collateral. They don't own it, so have no claim to any sales tax benefit. Nor would they have a claim to rental income if you rented it on Turo.

[jimbethesda]

Originally Posted by rak299

The extra revenue allows the politicians to afford their BMWs

I'm going to pile on the anti-politican thought here, but from a different angle.

CA's approach is actually better in some ways. In most states, the sales tax benefit when trading in benefits dealers the most (who donate A LOT of money to politicians and hold a lot of power over local governments). Let's say your current car is worth $40,000 as a trade in, but $45,000 if you sold it on your own. If you trade it in, you'd save $2,500 in sales tax (in TX). Instead of a $5,000 difference, now it's only $2,500. You're much more likely to trade it in now. The dealer can sell it for $50,000 because most people are more comfortable buying from a dealer instead of an individual.

CA, while in some ways worse, at least levels the playing field. Better, of course, would be that you can recoup the sales tax if you sold one car and bought another one within a few months.

This whole sales tax savings thing sounds great, it's really an example of lobbyists crafting laws to benefit them. We don't complain, because it seems good to us, but I'd prefer no sales tax benefit when trading in, but lower property taxes or lower sales taxes overall.

Just my $.02