Can You Sell Your Car Without Paying Taxes?

Selling An Old Car

When it comes to selling a car in the US, most owners don’t think too much about the tax. Why? There’s a couple of reasons for this. Depending on the state of your car, most car owners will trade an old car in when buying a new one. The value of their existing car is used against the purchase of a new car. Conversations about tax simple don’t come into the sales negotiation. Sell The Car USA have given us some tips

Not only that, many motorists in the US, having little or no experience of taxation when selling their car, don’t really consider any tax implications when they come to sell their car.

For anyone pondering how tax factors into selling a car, here’s the scoop. Keep reading below – you may just come across some information that you weren’t aware of – or had expected to see!

Can You Sell a Car Without Tax?

So, you list your car privately, find a buyer and agree on a sale. Simple, right? You’ve negotiated a price that you and the buyer are happy with – a price that doesn’t include tax. Should you be charging sales tax on top of the agreed price?

In short, no. You can sell a car without tax. A private seller does not have the responsibility to collect sales tax from the purchasing party – unless, of course, your income is derived from selling cars. Both full and part-time income from selling cars will be taxable. But, if you just want to sell a damaged car that’s remained stationary on your driveway from months, don’t worry, you won’t have to pay tax.

Do You Pay Tax When You Sell a Car Privately?

Most Americans will agree that the taxman is happy to take money out of your pocket for just about any transaction you make. So, this begs the question when selling your car privately do you have to pay a percentage in tax when you sell an accident damaged car – or one that’s in perfect working order?  

Again, no. At the point of purchase, you will have paid tax, whether directly to the dealership or at the DMW for private purchase. The government won’t ask sellers to pay tax on their car twice.

When Selling a Car Privately Who Pays Sales Tax?

Remember, someone pays sales tax, even when you sell your car privately. That person is the buyer. Every state has different laws and regulations when it comes to taxes on car sales. The tax rate on private sales does vary from state to state. If you’re looking to buy a car from a private seller, it’s probably worth checking out tax rates. You never know, you may be best buying a car from a seller in a different state?

If you’re unsure where to find out the tax rates of different states, you can always do a quick search online, or contact your local DMV. Remember, sales tax amount is based on the selling price. This is true when it comes to sell a damaged car or one in pristine condition. Basically though, the higher the car’s value, the more tax the buyer can expect to pay when they register their vehicle.

Selling Privately for Profit

It’s a fair assumption to say that 99% of cars bought will depreciate over the course of ownership. Cars are not an investment, they’re an expense. The moment you first drive a car away from the showroom, it will begin dropping in value. The more expensive the car, the more money that you’ll immediately lose immediately after purchase.

Now, it may be true that there are some tax incentives for trading a vehicle in at a dealership, but what if the value of the car is negligible? What if you want to sell an accident damaged car for profit?

Well, first off, you can forget about selling an accident damaged car for profit. It’s just not going to happen. However, for savvy car owners, there is a way that they can sell their car privately for profit.

How? Some car owners buy vehicles for massively discounted prices, say $1000, spend $500 on parts and don’t factor in the cost of labour before then selling the car for profit. Now, this process is only achievable if you have significant knowledge, experience – and time to make the necessary repairs. Not only that, you will have to pay tax on any profit made and there’s no guarantee that the price you sell the car for will reflect the time and effort spent fixing the car up for sale.

So, there you have it. There are instances when sales and income tax are applicable to car sales and instances when they are not. The question to ask yourself is what is the purpose and nature of your car sale? Only then will you know if you must pay tax – and the amount that you’ll be liable to pay. 

Can You Sell Your Car Without Paying Taxes?
Scroll to top