Trade in car tax credit question
 

Does anyone know when trading a vehicle into a dealer with a balance and having the car paid off balance paid off, do you still get a tax credit?

States That Allow Trade-in Tax Credit

There are veriations from state to state. In the state of Ohio, if you bought a new car (only) and traded in another car, only the difference is taxed i.e. new car is $15k and trade-in value is $5k, the sales tax applies only to the difference which is $10k.

My question given the following scenario

I have a car worth $10,000 and I owe $10,000 on it. The dealer is willing to pay it off and when I purchase a car that is $25,000. Do I pay tax on $25,000 or $15,000

You will not get any tax credit in that scenario. You will pay tax on the full $25K.

Thanks

Yeahhhhh... You'll pay tax on the amount you owe essentially.

That would be assuming you are buying a $15000 car. If your new car is 25000, the dealer is going to charge you 35000 to cover the upside down balance. you will still be paying tax on the 25k in that case.

In AZ, I just went though this buying a new car. I had a car that I owed what its was worth. The $12500 they gave gave for the trade in, even though it went to the payoff, was deducted from the taxable amount of the new vehicle.

Not that this has anything to do with the original question, but when you owe what it's worth and trade it in on a new car, that means you're immediately upside down in the new car. Not a good move.
I know people do it all the time because they can afford the payments, but if something goes wrong (job loss, wreck the car, etc.), you're screwed.

I don't see how the amount owed can be taxed?? Yes it gets rolled into the new loan, but as a separate entity. Essentially a loan is being taken out for a loan. That's my understanding here in IL.

In other words, you'll pay tax on $15K, but your loan will be for the $35K (+ whatever the tax on the $15K is).

If the remaining loan does get taxed in your state, perhaps it makes sense to pay off the loan first then trade the car in.