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Understanding Taxes When Buying A Car

taxes when buying a car

First-time car buyers may not be aware of some basic tax implications that apply to their purchases, and figuring out the taxes involved in buying a car or truck can be a little complicated – as they often vary by state. That means that a lot of drivers often encounter some unpleasant surprises regarding tax situations related to a vehicle purchase. It helps to know about some of the ways that vehicle tax situations have changed recently, and what is common in terms of collecting federal, state and local taxes relevant to vehicle purchases.

Car sales tax

In some states, buyers of either new or used vehicles must pay a vehicle sales tax. This is a percentage of the total value that the buyer pays for the vehicle.

Some states have changed used vehicle sales tax regulations based on some common practices by those purchasing vehicles. In an effort to alleviate taxes, buyers may understate the amount that was paid for the vehicle, or even “write in” an amount (such as one dollar) as the sale price. That practice has led to some states requiring that a vehicle purchase price not deviate more than a certain amount from the blue book value of a vehicle.

Kelley blue book value is a universal appraisal of the value of a vehicle based on location, condition, mileage and a range of other factors. Find Kelley blue

book values for used cars at the Kelley blue book website .

Car property tax

In some states or municipalities, a vehicle property tax is also assessed on cars, trucks, and other vehicles. This tax amount will again be predicated on a Kelley blue book value, but in this case, it will be the municipality and not the owner who assesses the value of the vehicle. Owners can challenge vehicle value assessments in local courts.

New rules for deducting auto sales tax

Traditionally, vehicle owners could not deduct sales tax from new or used vehicles from their federal income tax returns unless they qualified as a business expense. Recently, there has been a change to this rule, and now some drivers may be able to deduct sales tax from the purchase of a new vehicle. Some drivers in states without an auto sales tax can even claim a different reduction if they are purchasing a new vehicle. Web users can see more on these changes at the IRS web site .

Knowing about some of these basic tax issues can help with the often complex situations arising from purchasing a vehicle. As mentioned above, car sales tax and car property tax are common, though they may take drivers by surprise. However, with some research, drivers can sometimes apply tax deductions that can help alleviate the tax burdens incurred by their vehicle purchase.

Category: Taxes

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