Tax Implications of Buying or Selling a Car
If you buy or sell a car this year, those are both transactions that potentially will have an impact on your taxes. Today in the Thompson Sales blog, we’ll talk about how each of these needs to be reported and what you can expect from a tax perspective.
Taxes When You Buy a Car
When you buy a car, you have to pay sales tax on it. This is something that many potential car buyers forget. If you’re planning on buying a car, it’s a good idea to include sales tax in your budget so that you’re prepared. Of course, this is only the case if you live in a state that charges sales tax. Missouri, for instance, is one of those states, so it’s important to keep this in mind. You have 30 days to pay the sales tax in Missouri, so you can pick up your vehicle’s permanent license plates.
Even if you buy a vehicle in a state other than your home state, you have to pay sales tax to your home state. This is the case even if you bought your vehicle in a state that doesn’t have sales tax.
Taxes When You Sell a Car
Selling a car also has potential tax implications. In most cases though, you won’t have to pay taxes on the sale. This is because most people sell their car at a loss. If you bought your car for $10,000 and drove it for a few years, it would, inevitably, depreciate. As long as you sell your car for less than the purchase price, you won’t have to pay sales tax on the transaction.
On the flip side, if you sell your car for more than you paid, it’s considered a capital gain, and you must report it, just like if you report an investment that you realized. This is common if you buy fixer-upper cars and flip them after making repairs. Keep in mind that the cost of repairs and improvements can be folded into the purchase price, so it’s only a capital gain if the cost of the car and all of the improvements is more than the selling price.
Choose Thompson Sales
Looking to use that tax refund? Why not use it as a down payment on a new vehicle! Thompson Sales has a wide selection of new and used vehicles. Contact us today for more information or swing by our lot to speak with a member of our sales staff. We look forward to seeing you at Thompson Sales!