How should the value of a trade in be applied to the purchase of a new car? When I look back over the paperwork from previous purchases, I realize that the dealers I have dealt with have not been consistent. Sometimes, it appears that the trade in value was subtracted from the new vehicle price, and then taxes calculated based on this lower amount. Other times it seems that tax was calculated based on the full new vehicle purchase price and then the trade in value subtracted from this after tax price. Of course this approach results in more money out of my pocket.

If I negotiate out the door price first, then talk trade, how should the math be done?

Thanks!

 

here in canada trades always come off vehicle price BEFORE taxes. Thats the only reason people trade is taking into account the saved taxes which is 13% here. If not everyone would sell privately.

 

13% I thought it was 14% (7 + 7). Did they drop GST?

 

In most US states, the dealer should calculate the taxes after subtracting the trade in value. That's how it's done in Texas.

Some dealers also play a similar game with rebates; in some states the taxable value is determined after rebates are subtracted, but in some states I think you have to pay tax based on the price before rebate.

 

yup gst reduced. it was 8+6, now its 8+5,

 

As of January 1, 2008 GST is 5% and we have no PST in Alberta.

 

Thanks Number6! I am in Houston, so Texas rules apply.

 

In California, trade equity is the same as putting cash down.

 

I could see that the cost of the car didnt go down the vehicle you are trading should be delt with like it is cash. It sucks but it makes sence.

 

Cool. I remember the time they put in the GST at 7%.
I also had heard that you don't have PST out west in Alberta.

 

Depends what state you live in. Some states allow you to subtract the trade equity from the price before taxes, other, the taxes are on the purchase price.

If you own your trade outright, you essential end up pay sales tax twice on the remaining value of the car.

 

Can someone confirm that in California, tax is not deductible from trade-in?

 

I searched a little, I can confirm that California doesn't do tax deductible by trade-ins.
http://www.boe.ca.gov/sutax/faqpurch.htm#9

 

trade-in equity is the same as cash.

Think of it this way. Your price on the vehicle is the same, regardless of if you're trading in a car or not. Basically what it comes down to, is you are buying a car from the dealer, and you are selling your car to the dealer. Your car is worth money, but instead of giving you cash, theyre crediting it toward your purchase.

Thus, sale price remains the same, which is how it should be, and your trade-in equity is treated the same way cash or a check would be.

 

Either way, the taxes go to the government, not the dealership. So, the dealership doesn't benefit by collecting more taxes. At least, I wouldn't think so.