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How to Sell A Car With Financing


For most people, thinking about paying taxes when you sell a car has never crossed your mind. That may be because you’ve always traded in your car at the dealership and haven’t had to deal with it before. For others, you simply never considered the implications of selling a car without tax.

Don’t worry, we have the scoop on the selling car tax. And there might even be a few details that surprise you, courtesy of CarBrain. If you just need to get rid of your quick though, you can always get an instant quote online. To compare your options, read on.

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Can You Sell A Car With Finance?

You list your car for sale privately and make a deal with someone who wants to buy it. You’ve only negotiated the car selling price, without taxes included. Should you be charging sales tax to the buyer?

The answer is NO. You are totally fine selling a car without tax. A private seller does not have the responsibility to collect sales tax from the purchaser. Unless selling cars is a source of income for you – a full-time or part-time job, that is – you don’t need to worry about selling a car without tax.

How to Sell Cars With Debt

Selling Car TaxThat begs another question: do you need to pay tax when you sell a car privately? It seems like the taxman is in your pocket for everything else. Is this another thing you need to pay tax on?

As a seller, you are not required to pay tax during the transaction. If you recall, it’s almost guaranteed that you paid sales tax when you bought the car initially, whether from a dealership or when you registered a car at the DMV after you bought it privately. While you probably wouldn’t put it past the government, it would be charging you twice for the same product, and that’s not cool.

What Happens If You Sell A Car With Financing On It

But, someone pays sales tax, even on a private car sale. That person is the buyer.

Every state has different regulations and laws that pertain to taxes on car sales. The tax rate for private car sales varies from state to state, so to know exactly how much sales tax the buyer needs to pay, they will need to contact the DMV.

The sales tax amount is based on the selling price. The higher the car’s value, the more tax the buyer can expect to dish out when they register their vehicle.

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Now that sales tax is out of the way, what about income tax?

There have been stories about car dealership salespeople who say something like:

“You should trade your car in instead of selling it privately. If you sell it on your own, you’ll have to pay income tax because it’s money you have earned. Besides, when you buy a car from the dealership, you get a tax break.”

It’s malarkey. That’s a car salesperson trying to fast-talk their way into another sale. Here’s why.

In 99.9% of cases, cars depreciate. They aren’t an investment that increases in value, they’re an expense. As soon as you buy a car, its value immediately starts to drop. When you sell the same car – whether it’s days, months, or years later – you’ll never command the same price you paid for it.

Income Tax on a Car Sale

And because you’re selling it for less than you paid, you don’t need to claim it as income. Thus, no income tax.

It might be true that there are tax incentives for trading in a vehicle at the dealership, but it’s certainly not true that you’ll have to pay income tax if you sell it on your own.

Selling Privately for Profit

Now, if you’re in one of the extremely rare instances that you’ll be selling a vehicle for more than you’ve paid for it, it’s different. Technically, you’re supposed to pay income tax on the profit you make.

This is mostly for people who buy cars at a steep discount, fix them up for cheap, and sell them to make money. If you buy a car for $1,000, put $500 of parts and labor into it, and sell it for $5,000, you should be paying income tax on your $3,500 profit. Again, for most people, this situation doesn’t apply. However, if you simply need to sell your car online without any hassles you can always get an offer online. Click here to find out how much your car is worth now.

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