Long story short, an auto salesperson told me yesterday that if I buy a car
for $20,000 and get $15,000 for a trade-in as part of the purchase, I would
only have to pay sales tax on the $5,000 difference between the two figures.
I am in New Jersey and the sales tax is 7%.
I already bought a car (with no trade-in), so I am not trying to decide what
to do. But I started thinking about what he said and it made me wonder if
the sales tax savings on a trade-in is something that buyers should
For example, here are 2 different scenarios:
1) I buy a car for $20,000 and get $15,000 for a trade-in. So, my sales tax
on the transaction would be 7% of $5,000 or $350.
2) I buy a car for $20,000 but sell my car privately for $16,000 (instead of
taking $15,000 for it as a trade-in). My sales tax on the transaction would
be 7% of the $20,000 purchase price or $1,400.
According to scenario 2, even though I got $1,000 more for my car by selling
it privately rather than trading it in, the whole transaction would actually
cost me $50 more than scenario 1 due to the higher sales tax I would have to
In other words, in order for me to benefit by selling my car privately
versus trading it in, the private sale price would have to be at least 7%
higher the trade-in allowance.
Is that correct?