Beat The Tax Man

 

Buy a new car before Jan 1st, 2020 and beat the tax man!

Illinois car buyers are on the hook for an estimated $60 million extra in sales taxes thanks to a new law starting next year.

The state currently collects no sales tax on a car's trade-in value, which acts as credit toward a new vehicle purchase. By law, sales tax only applies to the difference between trade-in value and the new vehicle's purchase price.

That changes starting Jan 1, state and local sales tax will be applied to any trade-in value above $10,000.

The current state sales tax on trade-ins is 6.25%. Municipalities often add their own sales tax, averaging 2.49%, bringing the combined state and local sales tax to 8.74%.

Take, for example, an Illinoisan buying a new vehicle for $45,000 and trading in a car valued at $25,000. Currently, you would only pay sales tax on the difference of $20,000. The average sales tax on this transaction would be roughly $1,748.

In 2020, trade-in credit above $10,000 will be taxed in addition to the difference between the new and used car prices. In this example, the $25,000 trade-in will not be taxed on the first $10,000 in value, but the remaining $15,000 gets taxed along with the $20,000 difference between the new and used car values. So sales taxes will be applied to $35,000 of the transaction, which will cost $3,059.

So the same car deal will cost an extra $1,311 in sales taxes after Jan. 1.

 

DIFFERENCE = $1,311

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