If you are buying your next vehicle from a private seller rather than a dealership or selling a used car to an individual, there are a few tax considerations you should know. The first is that if you are selling your car for less than you paid for it, you likely won’t have to pay capital gains tax on the sale. This is because the IRS considers selling a used car for less than you paid a capital loss. But in contrast, if you are selling your car for more than you paid (like if it’s a classic car you’ve restored and it has increased in value), you may have to pay capital gains tax.
If you’re buying a car from a private seller, you’ll have to pay sales tax, but this sales tax doesn’t go to the seller, it goes to the DMV. This sales tax is incorporated in your car’s registration with the state in which you reside.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.