Help understanding tax?

Laura

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Hey all,

I’m trying to wrap my head around the tax on purchase with and without a trade. From what I’ve read, I would need to pay 6.25% of the purchase price, so that would be $2375 on a $38K purchase. If I get $28K on my trade, I could subtract that from the taxable amount? So it would be $625 on the $10K more that the new vehicle costs instead? Is that right?

I appreciate any and all help, so I can decide if it’s more prudent to take a lowball-ish offer from a dealer vs. taking Carvana’s higher offer.

Thank you!
Laura
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OBKriss

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Hey all,

I’m trying to wrap my head around the tax on purchase with and without a trade. From what I’ve read, I would need to pay 6.25% of the purchase price, so that would be $2375 on a $38K purchase. If I get $28K on my trade, I could subtract that from the taxable amount? So it would be $625 on the $10K more that the new vehicle costs instead? Is that right?

I appreciate any and all help, so I can decide if it’s more prudent to take a lowball-ish offer from a dealer vs. taking Carvana’s higher offer.

Thank you!
Laura
Straight from the Comptroller...
https://comptroller.texas.gov/taxes/publications/96-254/trade-ins.php

"Trade-Ins
If the purchaser of a motor vehicle trades in a vehicle as part of the transaction, the purchaser can deduct the value of the traded vehicle from the selling price. To be eligible, the trade-in must be taken as part of the same sales transaction and transferred directly to the seller. The tax is computed on the remaining selling price for the purchased vehicle.

For example, Jim purchases a $25,000 vehicle and trades in his $10,000 vehicle. Jim owes motor vehicle tax on the $15,000 difference."

Hope this helps.
 

Dcamp

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Hey all,

I’m trying to wrap my head around the tax on purchase with and without a trade. From what I’ve read, I would need to pay 6.25% of the purchase price, so that would be $2375 on a $38K purchase. If I get $28K on my trade, I could subtract that from the taxable amount? So it would be $625 on the $10K more that the new vehicle costs instead? Is that right?

I appreciate any and all help, so I can decide if it’s more prudent to take a lowball-ish offer from a dealer vs. taking Carvana’s higher offer.

Thank you!
Laura
I think you have it right. See below. I know this holds true for Colorado but some States may have different tax laws. Car sales tax in my neck of the woods is 5%. I received a quote from Carmax on my wifes current vehicle (2019 Mazda CX-3) that we will either sell or trade in. Just about made my jaw drop and hit the table. About $3000 more than what I was expecting. We hope to receive and close on our new BL in the next three weeks. In the next week or so I will take the car in to my dealership to get a trade offer. If the dealer offers close to 5% for the trade then I will trade. If much more than 5% then I will sell to Carmax.

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RachReadz

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It depends on if your state allows a trade-in tax credit (most states do). If yes, then you would only pay sales tax on the difference between purchase price of the new vehicle and the trade-in value of your old vehicle. The formula for total overall cost of the vehicle will be P+((P-T)*6.25%)-T-S, where P=purchase price, T=trade in value, and S=sale value (obviously if T has a value, S will be zero, and vice versa). Play around with the numbers.
 


OP
OP

Laura

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So then the balance point would be somewhere around a trade offer of $28225 vs. the Carvana offer of $30K. It’s just better to get it straight in my head before they start coming at me with numbers and the old “How much can you *afford* to pay?” The price is the price and the trade offer is the trade offer.
 

gman62

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Our fat arse governor in Illinois maxed trade in credit at $10,000 a couple years ago.
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