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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22692
Experience:  Taxes, Immigration, Labor Relations
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I traded a car into a dealership in May knowing I would be

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I traded a car into a dealership in May knowing I would be buying a vehicle from them in October. I wanted to benefit from the tax credit on the amount I traded in. I owed $54k on my vehicle, I traded it for $59k. They gave me a $5k equity check back and started a file on me knowing I'd be back in to buy a new car last week.

So I go to sign my paperwork and are told that I have to pay taxes on my vehicle because they disbursed the equity to me and that at that point, it was no longer considered a trade, but a full fledged sale and that I would owe taxes on the full amount. The GM said this came straight from the auditors mouth whom he had his sales manager speak to while the auditor was at their other location.

This was $3700 I was not expecting to have to pay and was hoping there was something that was misconstrued that would end up with me getting my $3700 back... something I could use to indicate what happened was not what was supposed to happen.

I'm in Florida.
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

Lev :

Hi and welcome to our site!
To determine if you have any gain on the disposition of your car - we need to know your basis.
The basis is mainly your purchased price.
The purchase price should be adjusted by some items, for instance
-- purchase expenses are added to the basis
-- if you had any improvements - the cost must be added to the basis.
-- if the car was used for business - the basis must be reduced by depreciation
Your gain on disposition will be calculated as $59k (selling price) MINUS (adjusted basis).
Your loan amount and equity you had at that time are not relevant for determination of your gain or loss on that trade-in transaction. |
If you provide additional information about your basis - I will help you to calculate possible gain or loss on that disposition.

Customer:

I used the incorrect terminology. I shouldn't have said tax credit.

Customer:

I meant the difference on taxes I did not owe since I traded my vehicle.

Customer:

IE: I had a $59k car, traded it for a $79k car, I only owe taxes on the new money, the $20k

Customer:

That make better sense? Sorry if I was not more clear... having a hard time putting to words what it is I am trying to say

Customer:

I was told that since the dealer gave me my equity back, that I was not entitled to any 'credit' when purchasing the new vehicle. That I essentially 'sold' my car to the dealer.

Lev :

Yes - now we are talking about sales tax liability - not income tax liability.
You are correct - when you trade-in the car - you will pay sales tax only on the difference in values between the old car and a new car.
However - in order to take advantage of that - that should be one trade-in transaction.
If you sold your car and purchased a new car in two separate transaction son different dates - that would not qualify for trade-in regardless if the car was sold to the same dealer or to a different dealer.

Customer:

I see, so a 5 month delay, no matter what the circumstance, would preclude me from the sales tax exception?

Customer:

Dang. I was hoping he was incorrect.

Lev :

Unfortunately - these are two separate transactions - see here - http://dor.myflorida.com/dor/forms/2009/gt800030.pdf


A trade-in that the dealer intends to resell lowers the sales price if the sale and trade occur in
one transaction. A dealer’s discount reduces the selling price of the vehicle at the moment of
sale.
Thus - to qualify for reduced taxable sale price - that must be ONE transaction recorded on the same day. Sorry.

Customer:

Got it. Thanks....

Customer:

:)

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22692
Experience: Taxes, Immigration, Labor Relations
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