Quick Question About Trading In A Vehicle..

Matt_ · June 17, 2010

NOT MY TRUCK (figured id get that out of the way)

OK, so there's a potential that i'll be trading my wifes car in for a Jeep Commander tomorrow. It's a big "maybe" because I know they're going to low ball me on the trade in value and i'd have no problem selling my 09 Subaru Legacy 2.5i Special Edition in the private market (AWD 5spd manual).

The one thing im not sure of is how the Taxes work. For instance, lets pretend the Jeep is $22K and i sell OR trade my car for $16K:

Scenario 1: I sell my car for $16K and go to dealer with cash. I pay tax on $22K of the jeep which would be $1540.

Scenario 2: I trade in my car for $16K for the Jeep... i THINK i pay $22K-$16K= $6K for taxes which would be $420.

Sales tax here is 7%... so if I traded it in I would be saving $1120 in taxes

I know rules vary state by state. Does anyone know for sure if this is how it works in NJ? If so... it makes me somewhat more included to do the trade as long as they get within ~$1500 of what i plan to get in the private market..

Finally, the kicker, if this IS the case in NJ... do dealers try to "hide" this by taking your trade-in but then charging you the sales tax on the full purchase price of the other vehicle?

C. Charles Hahn · June 17, 2010

Not sure about NJ, but in most states the trade in is deducted from the total transaction price POST-tax. It's not a pre-tax deduction because that loophole would lose the government a ton of revenue. There's no way they'd allow that.

Matt_ · June 17, 2010

Not sure about NJ, but in most states the trade in is deducted from the total transaction price POST-tax. It's not a pre-tax deduction because that loophole would lose the government a ton of revenue. There's no way they'd allow that.

That's what I thought...

But check out paragraph #6 (page 6 of the pdf): http://www.state.nj.us/treasury/taxation//pdf/njcar.pdf

It says that the trade-in allowance is excluded when determine the "Net Sales Amount"... and you pay tax on the "net sales amount". Per paragraph #18 (page 9 of the pdf), my transaction qualifies for the trade in allowance since it meets all of the listed criteria.

So im hoping someone has had some experience with this in the state so I can make sure I dont "pay" additional tax that the dealer sneaks in and then keeps for their own profit.

SavageNFS · June 17, 2010

I know nothing about NJ tax laws, but in Wisconsin there are some dealers that are willing to work with you on this topic and some that will not (you get nailed here). I would call the finance dept at the dealership you are considering before you set foot on the lot and have your answer first. There would be no reason for the finance dept not be upfront and tell you what the policy is for the transaction. Here you get charged tax on the total purchase price of the vehicle sale. Doesn't matter what you put down as far as cash or trade. When you sell a vehicle in the private sector, they make the purchaser pay sales tax before they issue tags. In reading the .pdf, it seems pretty clear that you are allowed to take the trade in value of the Commander off the purchase price. Looks like you are ok, but call the finance dept to confirm.

C. Charles Hahn · June 17, 2010

The way I read that, it means that you don't include the fact that there is a trade allowance when you determine the net sales amount. Which means they don't apply the trade allowance pre-tax. Same with title and registration fees (non-taxed), dealer documentation fees (non-taxed), and any handicapper upfitting (non-taxed).

It does seem strange that they say "may" exclude as opposed to "should" or "will" exclude though. It does leave a loophole there.

Matt_ · June 17, 2010

The way I read that, it means that you don't include the fact that there is a trade allowance when you determine the net sales amount. Which means they don't apply the trade allowance pre-tax. Same with title and registration fees (non-taxed), dealer documentation fees (non-taxed), and any handicapper upfitting (non-taxed).

It does seem strange that they say "may" exclude as opposed to "should" or "will" exclude though. It does leave a loophole there.

It's also weird because i know that dealer incentives and down payments are applied POST tax... and they're included in Paragraph #5. So I would then think that if the trade-in credit was applied post-tax, it would be included in the same paragraph as the down payments and incentives.

Also, they call it a "trade in allowance" and "credit" and make note that this "allowance" is only available if the vehicle is being traded in for the dealer to re-sell... thus, it would make sense that you aren't paying tax on that amount since the dealer will have to sales tax on that portion when the car sells..

And FYI i DO plan on talking to the finance department and making sure this is all squared away. Just wanted to run it past some of the guys here who may have been down this road already.

jwieps · June 17, 2010

Matt - I am the finance manager at West Herr Subaru in Buffalo and also have a Jeep franchise...... Wanna take a road trip? I would like to know how you make out. Good Luck!

Matt_ · June 17, 2010

Matt - I am the finance manager at West Herr Subaru in Buffalo and also have a Jeep franchise...... Wanna take a road trip? I would like to know how you make out. Good Luck!

NOW you tell me!

Wouldn't be my first time driving 7 hours to pick up a vehicle.... you have any 07-08 Jeep Commanders?

Stevens03 · June 17, 2010

Blueknobauto.com

Matt_ · June 17, 2010

Blueknobauto.com

Thanks for the link.. ill check that out.

The jeep im looking at tomorrow was literally just traded in... it wasn't even put out on the lot for sale yet. i just happened to show up to look at another jeep that was still on the website and sold this past weekend. I'd say there's a slim chance at best a deal will go down especially since from what I was able to see, its a "Limited" version with the 5.7L Hemi which automatically puts it $4-5k higher than i want to be. So unless they give me a really good trade in on my car and one hell of a deal on the Jeep, i'll still be shopping.

No rush.. I have all summer (actually longer) to figure this out and will have the title for the car next month so I can sell it privately pretty easily

ShimanoFisherman · June 17, 2010

The one thing im not sure of is how the Taxes work. For instance, lets pretend the Jeep is $22K and i sell OR trade my car for $16K:

Scenario 1: I sell my car for $16K and go to dealer with cash. I pay tax on $22K of the jeep which would be $1540.

Scenario 2: I trade in my car for $16K for the Jeep... i THINK i pay $22K-$16K= $6K for taxes which would be $420.

Sales tax here is 7%... so if I traded it in I would be saving $1120 in taxes

That's exactly how it would work in Louisiana, but obviously, that doesn't help you much. Would really suck if you didn't get the break on trade.

An in-and-out gets you an even better deal although it's usually more difficult to set up b/c you need the buyer lined up and ready to go to the dealership with you. But I did that on my last truck and made out better than I ever have on trade. Got a few thousand more than I was offered on trade, only had to pay tax on the difference between the two and just had to pay a $150 documentation fee. And the kicker was, I did it all over the phone/fax between all parties and the dealership in MS had an old couple drive the truck down to my house.

Matt_ · June 18, 2010

Got the jeep today.

2007 Jeep Commander Limited Edition, 5.7L Hemi, FULLY loaded, 21,400 miles (3 year lease turn in). Nav,Backup Camera, Leather, moon-roof, 2 skylights, rear hvac, etc etc etc

$25.5 for the jeep (certified pre-owned w/ 6year 80k mile warranty)

$13.5 for my trade in... but i DID save on tax so that's like me selling the car for $14,300... a little less than i probably would have got but i dont have to go through the hassle now. I'm going to sell my winter tires/wheels that would have been given away to a private buyer, so that'll make up the difference so i feel a bit better

I'll throw some pics up in the morning. Already have the car seat loaded... it sure is nice having all that extra room!

Hey jwieps; I only have 1 key. Anyway you can help me out with a 2nd fob? Those things are a ripoff

SavageNFS · June 18, 2010

Congrats Matt...I'll bet the Mrs. is happy!

Matt_ · June 18, 2010

Congrats Matt...I'll bet the Mrs. is happy!

Moreso than you know. She dropped the phone when i was talking to her. We were looking at "base models".

I'm not going to lie, im dissapointed in myself for buying a vehicle so quick... My prices aren't "great", but they're reasonable based on KBB values and there aren't many Commanders within an hour drive.

It's an absolutely beautiful vehicle so I figured i'd snag it while I had the opportunity and pay it off as quick as i can.

jwieps · June 18, 2010

Got the jeep today.

2007 Jeep Commander Limited Edition, 5.7L Hemi, FULLY loaded, 21,400 miles (3 year lease turn in). Nav,Backup Camera, Leather, moon-roof, 2 skylights, rear hvac, etc etc etc

$25.5 for the jeep (certified pre-owned w/ 6year 80k mile warranty)

$13.5 for my trade in... but i DID save on tax so that's like me selling the car for $14,300... a little less than i probably would have got but i dont have to go through the hassle now. I'm going to sell my winter tires/wheels that would have been given away to a private buyer, so that'll make up the difference so i feel a bit better

I'll throw some pics up in the morning. Already have the car seat loaded... it sure is nice having all that extra room!

Hey jwieps; I only have 1 key. Anyway you can help me out with a 2nd fob? Those things are a ripoff

No kidding (if your think the Jeep key is expensive - trade in your Subaru with the "factory lazer cut key" with only one)...... and when they ask you for the second - ask for your second. Subaru keys cost 5x more than Jeeps! ..... but Ill check for you on Saturday (Im off tomorrow ). Glad to hear you got it.

Matt - PM me your Subaru VIN and mileage if you have the chance. All bullshit aside.... I could really use your car if its clean! $hit, Ill send a driver to your house with a check.