Trade in with positive equity - tax saving calculation

[toni8284]

I dont know if this question belong here. So please delete if it's not allowed.

I order the F150 from Chapman and ready to pick up on Friday.

The truck after incentive is $54k.

I am going to trade in my SUV for $47k and the pay off is $20k. So I should have a positive equity of $27k.

Since I live in PA, so if I trade in the vehicle, I should only pay $54k - $47k = $7k x 6% sales tax. $420 taxes.

I want to take advantage of the 0% for 60 months. I would like to request a check back of the positive equity of $27k and finance the full $54k plus the sales tax of $420.

But I have been told that's not doable, because I took the $27k back. So I need to pay the $27k sales tax which is $27k x 6% = $1620, in additional. Total $1620 + $420 = $2040 in sales tax.

To me, it makes sense that I should only pay $420. Since I did pay the full $47k in sales tax for my SUV.

Please let me know if you have done it before.

Thanks

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[UGADawg96]

I'd think you'd only get the tax savings if you actually trade in versus trying to cash out. You shouldn't be able to get the equity back during the sale and the tax savings. But I'd imagine your tax office could confirm that if you don't like what your dealer's finance folks are saying. But I am leaning to agree with them.

 

[pkinneb]

You would actually have to trade it in. Getting the equity back is like an outright sale and you will lose the tax advantage.

 

[BLoflin]

If you want to buy and fully finance a new truck at $54K you can, but the sale is $54k and you pay the sales tax.

If you want to sell current truck for $47K you can, but $20K will go to lien holder and you will net $27K

If you want to trade your truck in for $47K you can, but you must first get clear title by paying off the $20k to lien holder. Then your sales tax will be on the $7K. However Ford will only finance the sales transaction of $7K. Because you basically paid $47K as "cash" downpayment so the only part to finance is the $7K.

If you want to trade in your truck (for $47K) but with the $20K lien intact, then you are only bringing net $27K to the sale (as Ford has to turn around and pay off the $20K lien). So the sales transaction net for finance and taxes is $27K ($54K-$27K).

If you want you can look at that last scenario (directly above this paragraph) as the Ford sale is $74K (i.e. $54K for new truck and $20K to lien holder to acquire old truck) and you are bringing $47K to the sale, so result (of course) is the same $27K ($74K-$47K). Which you will pay taxes on and can finance.

The only scenario for you to finance $54K from Ford is if you purchase an asset (truck) from them for that amount (the asset is the collateral in car loans).

The only scenario for you to pay the least amount of sales tax is for the sales transaction (with Ford) to be as small as possible. This is where you come up with $20K cash to pay off lien, then trade-in truck for full $47K value to Ford.

There is no scenario where for loan purposes you "borrow" $54K and fully finance, but then actually only do a sales transaction that is net $7K. Also it appears you are hoping you could acquire the truck for net $7k for tax purposes, but finance $54K, so that you can walk out the door with new truck and $27K cash in your wallet (after paying off lien).

If the point that is bothering you is that you already paid sales tax on whatever the sales transaction was for your current truck and now you "want that back" (or at least want it counted) as part of the new transaction, that is not how sales taxes work. If I buy an asset for $100 I pay sales tax on that $100. If I then turn around and sell it to the next person for $90 that person pays sales tax on the $90, then if they turn around and sell it for $80 to another person, that person pays sales tax on the $80, etc, etc. The state gets sales tax on EVERY sales transaction. It is a SALES tax, not a net equity/value tax. Of course I'm simplifying as there are different rules for different assets in different states.

 

[TN Rotty]

The @BLoflin explanation effect here:

 

[SILVERBULLET69]

sold my 1st vehicle for 12,000 clear title
sold my 2nd vehicle for 12,450 lien around 6000.00
bought 21 f-150 for 56,300
state of missouri credited 24,450 towards new vehicle purchase sales tax
56,300- 24,450=31,850
31,850 x 8.5% = 2707.25 in sales tax

that was my deal

 

[Plattypuss]

I dont know if this question belong here. So please delete if it's not allowed.

I order the F150 from Chapman and ready to pick up on Friday.

The truck after incentive is $54k.

I am going to trade in my SUV for $47k and the pay off is $20k. So I should have a positive equity of $27k.

Since I live in PA, so if I trade in the vehicle, I should only pay $54k - $47k = $7k x 6% sales tax. $420 taxes.

I want to take advantage of the 0% for 60 months. I would like to request a check back of the positive equity of $27k and finance the full $54k plus the sales tax of $420.

But I have been told that's not doable, because I took the $27k back. So I need to pay the $27k sales tax which is $27k x 6% = $1620, in additional. Total $1620 + $420 = $2040 in sales tax.

To me, it makes sense that I should only pay $420. Since I did pay the full $47k in sales tax for my SUV.

Please let me know if you have done it before.

Thanks

I'm a former salesman in PA of quite a few years. Tax is calculated on sale price (including rebates) minus trade value. Nothing else comes in to play if you trade it in or do a courtesy trade where a 3rd party buys from you via the dealership (they treat it like a trade internally).
Equation Sale price - rebates - trade value=X Then X multiplied by 1.06 or 1.07 (depending where you live) plus payoff, tags, fees, etc... is the total price paid.

You absolutely can get a check issued to you with some of your equity with no ill effect presuming approval by the lienholder.

 

[Way2qk4u2c]

I was told the lien has nothing to do with sales tax savings / credit

 

[toni8284]

Thanks for all the inputs. Since I can’t get my scenario to work out. I will better sell my truck to Carshop for $48500 instead of trading in. And I will finance the truck in full amount with tax. So I paid $54k x 6% = $3240.

but I got $1500 more out for selling it instead of trading it in. So my net cost is $3240 - $1500 = $1740.

so I can get $30k back for investment for 5 year, as long as my return more than $1740 then I’m good.

 

[F1Fiddy]

y'all lucky, our lousy state only allows no tax on the 1st 10k. Illinios, born here and sure as heck won't retire here as its one of many BS ways they legally pick our wallets

 

[BLoflin]

Thanks for all the inputs. Since I can’t get my scenario to work out. I will better sell my truck to Carshop for $48500 instead of trading in. And I will finance the truck in full amount with tax. So I paid $54k x 6% = $3240.

but I got $1500 more out for selling it instead of trading it in. So my net cost is $3240 - $1500 = $1740.

so I can get $30k back for investment for 5 year, as long as my return more than $1740 then I’m good.

It's actually better than that. You paid $3240 in sales tax. If you had done trade-in (net TI of $27K) you would have paid $1620 in sales tax. So you "lost" $1620 in not doing TI at dealer. But you sold for $1500 more than TI value. So your net cost of not doing TI was just $120. And you netted $28.5K cash for the sale of you current car. And have a 0% loan for the new vehicle, so you are only paying principal through out the loan.

So now lets look at your finances going forward.

Figure your monthly car loan payment will be about $954.

However, if you had TI and then just took a loan for $28.62K, your monthly payment would be $477.

So it's costing you another $477 a month to have that $28.5k in cash.

If you invest that $28.5K and get 6% (good low risk return in current environment), and take $477 from your investment every month (to make up the additional payment cost of bigger loan). Then at the end of the loan (5 years) you would still have $5K left in your investment account (and of course your new car loan paid off). If you could average 10% return on your investment, you would have almost $10K left.

 

[toni8284]

It's actually better than that. You paid $3240 in sales tax. If you had done trade-in (net TI of $27K) you would have paid $1620 in sales tax. So you "lost" $1620 in not doing TI at dealer. But you sold for $1500 more than TI value. So your net cost of not doing TI was just $120. And you netted $28.5K cash for the sale of you current car. And have a 0% loan for the new vehicle, so you are only paying principal through out the loan.

So now lets look at your finances going forward.

Figure your monthly car loan payment will be about $954.

However, if you had TI and then just took a loan for $28.62K, your monthly payment would be $477.

So it's costing you another $477 a month to have that $28.5k in cash.

If you invest that $28.5K and get 6% (good low risk return in current environment), and take $477 from your investment every month (to make up the additional payment cost of bigger loan). Then at the end of the loan (5 years) you would still have $5K left in your investment account (and of course your new car loan paid off). If you could average 10% return on your investment, you would have almost $10K left.

I am 100% pretty sure if I TI I will only pay $54k - $47k = $7k worth of taxes.

I just double check my paperwork for my last 2 purchases.

	$ 55,490.00
custom incentive	$ (1,000.00)
cash incentive	$ (500.00)
	$ 53,990.00
doc fee	$ 394.00
tag (est.)	$ 200.00
total	$ 54,584.00
trade in	$ (47,000.00)
balance	$ 7,584.00
tax	$ 455.04
payoff	$ 18,500.00
total (tax + payoff)	$ 26,539.04
60 months 0%	$ 442.32

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