Save on Texas auto sales taxes even if you sell your car yourself.
One benefit of trading in your car to the same dealer you are buying another car from is the reduction in Texas auto sales tax, which is calculated at 6.25% of the purchase price. We’ll break this down with some scenarios below to explain:
- Option 1: Buying a new or used car without a trade for $10,000: You will pay 6.25% ($625.00) plus title, license and any other dealer fees.
- Option 2: Buy a new or used for $10,000 and trade in a car worth $5,000: You will only be required to pay 6.25% on the $5,000 difference ($312.50) in this scenario. It doesn’t matter if you are upside down on your trade in or if it paid off, you will not pay sales tax on the amount the dealer buys your car for.
Now, when you start increasing the purchase and trade in values above, you can see how this tax savings can be significant. Unfortunately, when selling a car as a private party, you lose this benefit, even if you buy a replacement car right after.
This is where the “in and out” concept came from. For a fee, some dealers will let you sell your car on your own, but process the transaction through their dealership in order to pass on the tax credit to you when you buy your replacement vehicle. Of course, the replacement vehicle has to also be purchased from the same dealer, but one added benefit is that you do not need to buy your replacement vehicle right away. You may have until December 31st of that year to find your next car.
This works great for everyone, but is ideal for:
- The vehicle you are selling is sold for over $50,000
- You go through cars more often than most
- You are a car collector
For more information on this, contact us. We would be happy to explain it more in detail.
