How Much Tax Will I Pay for a Used Car?

Updated on April 8, 2024

At a Glance

  • Sales tax on used cars varies by state, typically ranging from 3% to 8%
  • Some states, like Alaska, Delaware, New Hampshire, Oregon, and Montana, do not have a sales tax on used vehicles
  • The sales tax is based on the purchase price and is collected by the state’s Department of Motor Vehicles (DMV)
  • Additional fees, such as title transfer fees and registration fees, may apply and vary by state

Are you thinking of buying a used car? You might have to pay taxes and fees similar to when purchasing a brand-new car.

But how much taxes are involved? What are the various fees involved, and to whom will they be paid?

In this article, we explain everything you need to know about taxes on used cars.

Is There a Sales Tax on Used Cars?

Yes, there’s a sales tax involved in buying used cars. In fact, there’s a sales tax involved when buying or leasing any car. This goes to the state and its Department of Motor Vehicle. If you’re purchasing a car in California, the sales tax will be collected by the California DMV. The sales tax is billed on the receipt (or similar official documents that prove the transference) you receive from the previous buyer. Then the seller pays the tax to the government.

It is mandatory that the seller provide this bill of sale to the DMV. This is irrespective of whether you buy the car from a dealer or directly from the seller. It should show the sale price, and the DMV representatives will deduct the taxes from the total amount accordingly.

To curb misuse in the form of mutually lowering of price on paper to save money, certain states require the sale price to be linked to the blue book value for the car.

How Much Is Sales Tax on Used Cars?

The sales tax varies from state to state. In one state, you could be paying upwards of 8% of the car’s price, while in some states only 3%. Some states like Alaska, Delaware, New Hampshire, Oregon, and Montana do not have a sales tax on used vehicles.

The reason for this difference is that it’s the state that governs the roads and automobiles. Since it directly impacts their revenue from taxes, they set the sales tax rate based on their own financial conditions and other influencing factors.

The national average is around 5.75%. So, if you’re buying a used car for $10,000, expect to pay around $575 as sales tax. You’d have to know the exact tax in your state before you negotiate with the seller.

How to Calculate Sales Tax on a Used Car

However attractive the price might have been before you finalize a car deal, you need to calculate the sales tax at your end. Just follow the steps and grab a calculator for this.

Choose Your Vehicle and Model

The sales tax will depend on the amount you pay to the seller. And that amount fluctuates from car to car. Therefore, you’d have to choose a car model, if you haven’t already. Many online portals list cars for sale. Also, local car dealerships have such deals. So, go through the options available and select an option that falls within your budget.

Get the Market Value

Next, you need to gather information on its market value. Market value is the amount of money other people are willing to pay for it. The same online portals list the market value price as well. You can get in touch with local car dealers or repair centers to get an accurate quote. Since you’ll be buying a used vehicle, its market value would have depreciated. So you’ll likely pay less than the showroom price unless it’s a special edition.

Calculate the Sales Tax

Finally, grab a calculator and do some calculations. If the sales tax in your state is 5.75%, which also happens to be the national average, then multiply 5.75 by the amount and then divide it by 100. 5.75% of $10,000 is $575.

Therefore, the sales tax you need to pay to the seller (or the DMV, for that matter) is $575. It’s worth asking whether the tax is included in the price. If it’s included, you do not have to pay anything extra.

But that’s not all. Depending on your state, you’ll be paying additional fees. Some of these fees are mentioned in the section below.

Other Fees When Buying a Used Car

Sometimes there are other types of fees you incur when buying a used car. You need to pay these to the DMV. So check with your respective states for the rates.

Title Transfer Fees

When purchasing a car from a seller, you need to transfer the title of ownership. Without this, you cannot legally claim the vehicle even if you’ve paid the amount in full. This is often done through a local lawyer. But you can also walk into the DMV office and do the paperwork yourself. Depending on the state, the fee for title transfer is somewhere between $15 and $50. So, pay the fee to transfer the title when buying a used car.

Registration and Licensing Fees

Unlike title transfer fees, registration and licensing fees are not easy to calculate. The best people to calculate this for you are the DMV representatives. This will probably require assessing your car’s model, make, year, and health, among other details. Insurance fees might also get included in registration fees. So be open to it. If you are registering the car as a commercial vehicle, expect to pay more.

If the above fees are applicable, then the total price of the used car will be the car price plus the sales tax plus the title transfer fees plus the registration fees. This is if the fees are not included in the price.

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Final Thoughts

Some states also have something called an “asset tax.” This is applied to all of your possessions, and you pay the tax yearly. It’s important to be clear on these factors and file your taxes accordingly. If you have any questions, contact an attorney in your area.

Frequently Asked Questions (FAQ)

1. Do I Have to Pay Sales Tax When Buying a Used Car?

In most cases, yes, you will have to pay sales tax when purchasing a used car. The exact amount of sales tax varies by state, so it’s essential to check with your state’s Department of Motor Vehicles (DMV) or equivalent agency to determine the applicable tax rate.

2. How Is Sales Tax Calculated for a Used Car?

Sales tax for a used car is typically calculated based on the purchase price of the vehicle and the tax rate in your state. Some states may also allow certain exemptions or deductions that can affect the final tax amount. It’s advisable to consult your state’s tax authority for precise calculations.

3. Are There Any Tax Credits or Deductions for Buying a Used Electric or Hybrid Car?

Depending on your state and federal tax laws, there may be tax credits or deductions available for purchasing a used electric or hybrid car. These incentives are designed to promote environmentally friendly vehicles. Be sure to research your eligibility for such incentives and consult with a tax professional for guidance.

4. Can I Avoid Paying Sales Tax on a Used Car?

In some states, you may be able to avoid paying sales tax on a used car through specific exemptions or by purchasing the vehicle through certain transactions, such as a gift or inheritance. However, these exemptions vary by state and circumstance, so it’s essential to understand the tax laws in your area.

5. Do I Need to Report the Purchase of a Used Car on My Income Tax Return?

The purchase of a used car is generally not reported on your income tax return. However, if you claim any applicable tax credits or deductions related to the vehicle, you should ensure that you accurately report those on your tax return. Additionally, vehicle registration and titling may require documentation, but this is not part of your income tax filing.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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