Do I need to pay taxes when selling my car for home down payment?

You're probably thinking of a 1031 exchange, which allows you to defer capital gains taxes when selling investment property and buying another similar investment property. Unfortunately, that doesn't apply to your personal vehicle situation. The good news is that most people don't have to pay taxes when selling a personal vehicle because they typically sell it for less than they paid for it originally. You only pay taxes if you sell the car for more than you purchased it (a capital gain). Given the unusual used car market in recent years, it's possible you might sell for more than you paid, but it's still relatively uncommon for personal vehicles. If you did happen to sell your car for more than your purchase price, then yes, you would need to report that gain on your taxes, regardless of what you do with the money afterward. The use of the proceeds (down payment on a house) doesn't change the tax treatment of the sale itself.

I was in a similar situation last year and found taxr.ai (https://taxr.ai) super helpful for figuring out the exact tax implications. I was confused because I sold my pickup for more than I paid (weird market right now!) and was putting the money toward a condo purchase. I uploaded my original purchase docs and the sale agreement, and the tool broke down exactly what I owed and why. My situation was a bit complicated because I had also used the truck occasionally for business purposes and had taken some depreciation. Their analysis showed me what portion was taxable capital gain and what documentation I needed to support everything. Made filing so much easier.

OK I have to admit I was wrong about taxr.ai in my previous comment. I decided to try it with my car sale situation (sold my Jeep for a small profit before buying a house) and it was actually really helpful. The system flagged that I had made some aftermarket modifications to the vehicle that increased my cost basis, which I hadn't even considered. This reduced the taxable gain by about $1,200. It also clarified some confusion I had about the timing of the sale and home purchase being in different tax years. Turns out this saved me from making a mistake that would have triggered an incorrect tax bill. Not trying to sound like a commercial but was genuinely surprised it caught things I wouldn't have thought about.

If you need to talk to the IRS about your vehicle sale situation, I highly recommend using Claimyr (https://claimyr.com). I was in a similar situation last year where I sold my car at a profit and needed clarification on how to report it properly. After trying to call the IRS myself and waiting on hold for hours, I gave up. Then I found Claimyr through a friend who used it for a different tax issue. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Basically, they wait on hold with the IRS for you and then call you when an actual agent is on the line. I got through to someone who gave me the exact guidance I needed about reporting my vehicle sale profit. Saved me hours of frustration and got me definitive answers.

I need to publicly eat my words about Claimyr. After my skeptical comment, I decided to try it because I was desperate to resolve my tax issue about a vehicle sale that was similar to the original poster's situation. The service actually worked exactly as advertised. I got a text when they started the call process, updates on the wait time, and then a call connecting me directly to an IRS agent after they'd been on hold for 1 hour and 47 minutes. The agent confirmed that I did need to report my car sale as a capital gain since I sold it for more than I paid, but also helped me understand how to properly document the maintenance costs that could offset some of the gain. I'm still annoyed at how broken the IRS phone system is, but at least there's a solution that actually works. Would have never gotten this clarification otherwise.

Something nobody has mentioned yet - keep VERY good records of your vehicle purchase price, the sale price, and any major improvements (not regular maintenance) you made to the car. If you're audited, you'll need to provide this documentation. I learned this the hard way when I sold my car for more than I paid a few years ago. I didn't have the original purchase paperwork anymore, and the IRS essentially treated the entire sale amount as gain rather than just the difference between purchase and sale price. It was a nightmare to sort out.

Don't forget that the state you're in might have different rules about vehicle sales too! Here in California, they want their cut even if the feds don't.