Taxes for Buying Used Cars
Tax requirements for used-car purchases differ by state. Some states don't charge any tax at all, while others increase tax rates depending on the town a buyer lives in. Determine your tax rate and cost before you purchase a vehicle. This way, you can budget for your used-car purchase accordingly.
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Call your state motor vehicle department to find out how much you can expect to pay for your taxes based on your town, county and state. You can also visit your state's motor vehicle website to find out more about your taxes and the payment process. In some states, taxes aren't due until you register the vehicle. Some states tax vehicles on actual purchase price, while others determine value on their own using a value guide.
Other Fees
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Budget for other state fees, which are often due at the time you pay your taxes. Expect to pay for your title and registration application. Depending on your state's registration rules and cost, you may pay hundreds of dollars for a one- or two-year registration. After you register and title your car, most states require some form of emissions or inspection testing. Determine the total cost of all fees in addition to the car's purchase price and taxes so you can have your funds ready.
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Trade Exception
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Some states offer a tax deduction to buyers who trade in a vehicle toward another purchase at a dealership. For example, if you have a trade vehicle appraised at $10,000 and live in a state with a 6-percent tax rate, you will save $600 in tax charges when you purchase another vehicle. The tax savings can prove worthwhile when compared to selling your car privately. In this same scenario, you would have to sell your vehicle for $10,600 privately to equal the dealer's offer.
Dealer Purchases
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Dealerships are authorized to collect all applicable state fees and taxes. You do not have to pay taxes for a used-car purchase separately at your state's motor vehicle office. If purchasing from an out-of-state dealership, you can often choose to let the dealer handle your taxes and fees or acquire a temporary plate to return the vehicle home to complete the process yourself. If purchasing aftermarket items for a used car, such as an extended warranty, expect to pay taxes on the items you buy in addition to the car's sales price.
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