How to Calculate My Car's Basis for Taxes

Tax rates differ by state and often by county or town. States also view the taxable cost of a car differently. For used cars, some states use the car's book value instead of its selling price unless the vehicle was purchased from a dealer. Determining a new car's taxable price becomes more complicated if the sale involves rebates, price negotiation, dealer fees or a trade-in. You might need the help of a dealer or your state's motor vehicle website to determine which value the state uses to determine tax charges.

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Used Cars

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Step 1

Go to your state's motor vehicle website to determine whether your state taxes on actual purchase price or book value. Obtain your area's tax rate from the motor vehicle website if you don't know it. If your state taxes on book value, you'll find the guide it uses.

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Step 2

Research your vehicle's value using the appraisal guide listed on the motor vehicle website. Appraisal guides are offered online for free.

Step 3

Multiply your taxable price by your tax rate. For example, if your selling price or book value price is $14,000 and your tax rate is 8 percent, multiply $14,000 by .08 to obtain your tax charge.

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New Cars

Step 1

Ask your dealership if your state taxes rebates and reduces taxes for trade-in vehicles if either of these apply to your sale.

Step 2

Calculate the vehicle's taxable cost by beginning with the car's negotiated value. For example, if the sticker price of the vehicle is $15,000 but you negotiate $500 off before rebates, your starting cost is $14,500. Use the car's sticker price if you didn't negotiate a lower cost.

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Step 3

Deduct your trade-in value from the negotiated price (if applicable) if your state recognizes the tax value of a trade-in.

Step 4

Add taxable dealer fees or other purchases to your taxable cost. Ask your dealer if you'll pay taxes on any state-imposed fees or the dealer document fee. Include the costs of purchase, such as an extended warranty or gap insurance.

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Step 5

Multiply the total taxable cost by your area's tax rate. Deduct your rebate after including tax, as rebates are used as a down payment, not a taxable price deduction.

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