Everything You Need to Know about Taxes When You Buy and Sell a Car

Do I have to report my new car on my taxes?

You don’t have to, but you probably want to. That’s because the IRS will allow you to deduct the sales tax you paid on the vehicle.

Your sales tax should be listed on your title and registration paperwork, so keep it somewhere safe until tax time. If you can’t find it, the deduction might be worth a trip to the courthouse to get another copy. 

 Do I have to tell the IRS about the car I sold?

If you sold your car for less than you paid, you don’t have to report it on your taxes. However, a car sold at a profit must be declared as a capital gain. 

If you sold a car sometime in mid-to-late-2022, you actually might have to file your vehicle sale as a capital gain since a lot of y’all sold cars at a profit. But, most years, this isn’t the case because cars are typically depreciating assets. 

I lost money when I sold my car. Can I deduct that?

No. Unless it’s a business vehicle. 

For sole proprietors, you can deduct that loss from your overall profits and reduce your tax liability. 

And there are more implications for larger businesses, but if you have a larger business, you are hopefully receiving higher-level tax information. 

What is the EV Tax Credit?

The US government began incentivizing the purchase of EVs in the 2010s. And the most recent package of incentives in the 2022 Inflation Reduction Act is the most lucrative yet. 

Simply put, if you bought an EV or plugin hybrid in 2022, you are likely eligible for up to $7,500 in tax credits. We say likely because there are a few stipulations based on your income and the make/model. 

This tax credit is also good for 2023, meaning it’s not too late to reap the tax benefits of an EV purchase. If you purchase a qualifying EV this year, you can file for the EV tax credit next year. And starting in 2023, you can also qualify for up to $4,000 in tax credit for the purchase of a used EV.