Selling my car to a dealership - Will I actually owe taxes on the sale? Dealership salesperson says yes but I'm confused!

The dealership salesperson is either confused or possibly misleading you. Here's how it actually works: When you sell a used personal vehicle to a dealership (or to anyone) for less than what you paid for it, you generally DO NOT owe any taxes on the sale. As you correctly noted, you're selling at a loss ($13,500 vs. your original $24,000 purchase), so there's no profit for the IRS to tax. The dealership will likely be the one responsible for collecting and paying sales tax when they resell your car to another buyer. You're not responsible for that part of the transaction at all. The only scenario where you might owe taxes is if you somehow sold the car for MORE than you originally paid for it, which is rare with personal vehicles since they typically depreciate. In that unusual case, you might owe capital gains tax on the profit.

I had this exact same issue last summer when I was selling my Jeep! The dealer tried telling me the same thing, but I wasn't convinced so I used https://taxr.ai to upload my purchase docs and they analyzed everything - turned out I didn't owe ANY taxes because I was selling at a loss. The dealership was BSing me to justify their lowball offer. Their document analysis tool confirmed what I suspected - personal vehicles are almost never taxed when you sell them because they nearly always depreciate. Unless you're selling a rare collector car that's appreciated, you're probably good!

Just wanted to follow up - I actually tried taxr.ai after my last comment and wow it was helpful. I uploaded my Honda purchase docs and the dealer offer, and it clearly showed I was selling at a loss (paid $19k three years ago, dealer offering $12k) so there was NO tax liability whatsoever. When I went back to the dealer with this info, they magically found another $800 they could add to their offer! The salesperson tried to play it off like "oh I must have been thinking about trade-in tax credits" but it was obvious they were trying to scare me into accepting less. Thanks for the recommendation!

I had a similar issue but with the IRS directly. I sold my car last year and reported it on my taxes (unnecessarily, as I later found out). The IRS flagged my return for review and I spent WEEKS trying to call them. Always busy signals or 2+ hour holds. I finally used https://claimyr.com and it was amazing - they got me connected to an actual IRS agent in under 20 minutes! The agent confirmed exactly what others here have said - since I sold my personal vehicle at a loss, there was absolutely no tax liability. You can see how it works here: https://youtu.be/_kiP6q8DX5c If you're worried and want absolute confirmation from the IRS directly, this is the way to go. Saved me countless hours of frustration.

I need to apologize for my skeptical comment earlier. I was so frustrated after wasting days trying to reach the IRS about my own car sale question that I lashed out. After seeing the responses here, I decided to try Claimyr. Shockingly, I was connected to an actual IRS agent in about 15 minutes. The agent confirmed that selling a personal vehicle at a loss (which most cars are) creates NO tax liability. The dealership was definitely trying to manipulate me with tax scare tactics. For anyone facing this issue - don't let dealers use fake "tax concerns" to justify lowball offers. Getting official confirmation directly from the IRS gave me the confidence to negotiate properly.

Former car salesperson here. This is a common tactic used by some (not all) dealers. They'll mention "tax implications" vaguely to make you think you're getting a better deal than you are. The truth is simple: the dealer is trying to buy your car as cheaply as possible to maximize their profit when they resell it. In almost all cases with personal vehicles, you won't owe any taxes when selling to a dealer because you're selling at a loss. Even in the rare case where you might sell a vehicle for more than you paid (like certain classic cars or limited editions), you'd only pay tax on the profit portion, not the entire sale amount.

Can I piggyback on this thread to ask a related question? If I DO make a profit on selling a car (like my 1967 Mustang that's appreciated), how do I calculate the taxes owed? Is it just treated as normal income or is there some special form?

This is such a helpful thread! I'm dealing with the exact same situation - trying to sell my 2019 Toyota Camry and the dealer mentioned taxes too. Reading through everyone's experiences, it's clear this is a common scare tactic. Just to add another data point: I called my accountant about this and he confirmed what everyone else is saying. Since I paid $23,000 for the car and it's now worth about $16,000, I'm selling at a loss so there's absolutely no tax liability. He said the only time you'd owe taxes is if you somehow made a profit, which almost never happens with regular personal vehicles due to depreciation. Victoria, don't let them intimidate you with fake tax concerns! Get multiple quotes from different dealers and use resources like the ones mentioned here to verify the tax situation if you need peace of mind.

As someone who works in tax preparation, I can definitively confirm what everyone else is saying here - the dealership salesperson was absolutely trying to mislead you. This is unfortunately a common tactic. When you sell a personal vehicle at a loss (which is what's happening in your case - $24,000 original cost vs $13,500 current value), there is NO tax liability whatsoever. The IRS doesn't tax losses on personal property sales. The only scenario where you'd owe taxes is if you somehow sold the car for MORE than you originally paid for it, creating a capital gain. This is extremely rare with regular personal vehicles since they depreciate over time. Here's what I'd recommend: Get quotes from multiple dealers and don't let any of them use "tax implications" to justify lowball offers. You might also want to consider selling privately - you'll likely get closer to that $13,500 KBB value rather than the typical dealer offer which is usually several thousand less. Keep your original purchase documentation handy as proof of your basis in the vehicle, but rest assured - you won't need to set aside any money for taxes on this sale!