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Buying a Car? How Much Is the Tax?

Understanding the Tax

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Cost of Car

As much as we'd like to hope, we do have to pay and be responsible for sale taxes, even tax es on vehicle purchases. If you're unsure how these taxes work, here's a simple breakdown:

Check with MVD - Before you buy a new or used vehicle, check with your motor vehicle department (MVD) and inquire how much sales taxes are in your state. Each state charges at least three percent but some states are as high as seven percent. Once you're armed with your state's tax, start auto shopping.

New or Used Car Purchase - If you buy a new or used car from a dealership or used car lot, you will have to pay sales tax. For example, if you purchase a new car for $25,000, multiply your state's sales tax amount to find out how much you will owe to the motor vehicle department. If your state charges

three percent, your tax would be $750, as long as no trade-in was involved in your purchase. Sales tax is the same for both new and used vehicle and is based on the purchase price of the vehicle or what you paid for the car.

Got a Trade-In?

- If you have a trade-in when you purchase a new or used vehicle, your tax will change. Most car shoppers are happy to know that if you do have a trade-in, the amount of sales tax you will owe goes down. For example, if you purchase that same new or used car for $25,000 and the value of your trade-in is $10,000, your trade-in value is deducted from the $25,000 so you only pay three percent on $15,000 or $450.

Trade-in Value - Keep in mind that your trade-in value, as far as your motor vehicle department is concerned is what the dealership or used car lot gave you for that trade-in (trade-in allowance). It is not the actual cash value of your trade-in.

Category: Taxes

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