Use/Sales tax when buying an new car with trade-in -- how to negotiate?

[800v]

I am playing with the idea of ordering a new model Taycan and trading in my 2020 model; However, I live in Washington state and there is a 10.6% "use" tax in my county when you buy a car -- but you only have to pay tax on the difference between your trade-in and the new car.

But that puts the buyer in a real disadvantage with respect to the dealer I think: suppose I order my ideal super Taycan turbo s now, for, say $200k and it is finally delivered 8 months later ; suppose I try to trade in my beautiful turbo that is worth, say, $150 on the used market at that time. The dealer could offer a really low trade-in value, like $130k -- If I don't trade in (because the offer is so low!), the tax on the new car is now about $20k, but with the trade-in it would only be about 7k. That would mean quite a risk to see if I can sell the car on the used marked for $143k just to break even...

Moreover, the dealer knows I want the perfectly spec'd new car and would be hard-pressed to walk away from the deal.. (and what if I made a non-refundable deposit as well).

So, to me it seems the use tax puts the buyer in a difficult spot -- does anyone has any advice or experience to navigate this, and how to negotiate with the dealer? Maybe I misunderstood the tax implications?

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[Jhenson29]

We only pay tax on diff in MO also.

I always assumed I took a hit with dealer on trade in over it.

 

[whitex]

You understood the tax implications correctly @800v . This is nothing new. Dealers know this and take advantage of this. Tesla in WA has tuned their trade-in system to perfection, essentially always pocketing the 10% (they set the trade-in such that it's a wash, trade-in to them at lower price and get a tax credit, or trade elsewhere without tax credit).

When buying a car on the lot, you can negotiate (provided you're willing to walk away and dealer doesn't have a line of people waiting to take the allocation). You cannot negotiate future value of your car. You can negotiate the trade if you are willing to trade it early (i.e. within days of negotiation) and they will keep the credit for you for whenever your new car shows up, retaining the tax credit.

Trading the car early is not practical for most people however, so another workaround I ever found was to negotiate allowing a "trade-through", or a "sell-through" into the deal, and make sure you have it in writing (I once got burned on that one as the dealer backed out of the trade-through verbal agreement after I found another dealer willing to give me more on my trade).

A "trade-through" is when I find another dealer (not a private individual) who will pay me $X for a car, but my dealer will on-paper trade it in for me for $X in and instantly trade it to that dealer for $X - the car physically goes straight to the other dealer, but I get to have $X in tax credit. The dealer cost on this is just a bit extra paperwork. You do all the legwork finding a dealer who will give you more money.

A "sell-through" is when I find a customer to buy my trade for $X, then my dealer trades in for ($X-$FEE) and resells the car "as-is" (no warranties from the dealer) to the buyer I find for $X. $FEE is negotiable (I once paid $1,200 fixed amount, another time 4% of the sale price, which still left me with 6% gain). The dealer makes $FEE on this transaction, plus possible profit on financing if the new buyer needs a loan. You still do the legwork finding a buyer.

All that said, there is another catch to all this, which I also learned the hard way. In WA state, the dealer has the right to back out of the deal at any time before delivery, and all they have to do is to give you your deposit back. On the other hand, if you want to back out, depending on the deal, they might even have the right to sue you for the complete purchase price (which is why for larger purchases it is worth to put the max damages in the contract to limit your loses should you change your mind). I learned this once when I negotiated a deal on a car in transit (not a Porsche), then when the car showed up the dealer said they need another 10% or else they will not sell. I said no way, they refunded my deposit and cancelled the contract. I talked with an attorney who told me there is nothing I can do - dealer associations have strong lobbies and politicians in their pockets, so they gave themselves great legal advantages.

 

[wemct]

@800v I recently traded in my 2020 Taycan when I ordered a new 2023 AMG SL55. If your goal is to maximize the tax savings on the new car, you should trade in your current Taycan now. The dealer will buy the car now and apply the trade in value against the incoming car. It prevents the risk of the fluctuating valuation that you mentioned in your post. Keep in mind that the value of your current Taycan will continue to go down as time passes (the used car market is also getting cold). You also risk getting a much lower price on the trade in if you get in an accident before you trade in your car. By trading in my car now, I am also saving the monthly payments (and insurance) I would have paid on my Taycan.

I have done the same thing with other cars that I have purchased with a trade in.

 

[whitex]

@800v I recently traded in my 2020 Taycan when I ordered a new 2023 AMG SL55. If your goal is to maximize the tax savings on the new car, you should trade in your current Taycan now. The dealer will buy the car now and apply the trade in value against the incoming car. It prevents the risk of the fluctuating valuation that you mentioned in your post. Keep in mind that the value of your current Taycan will continue to go down as time passes (the used car market is also getting cold). You also risk getting a much lower price on the trade in if you get in an accident before you trade in your car. By trading in my car now, I am also saving the monthly payments (and insurance) I would have paid on my Taycan.

I have done the same thing with other cars that I have purchased with a trade in.

One thing to note in the case of trading early, if you don't have an allocations yet, you might be looking at years of wait but locked to that dealer. Should you find an allocation elsewhere, you cannot take your trade-in credit. You probably can get the cash out, sans any non-refundable deposit and any payouts to banks the dealer made on trade-in of course, but lose the tax credit.

 

[wemct]

We only pay tax on diff in MO also.

I always assumed I took a hit with dealer on trade in over it.

The price the Mercedes dealer offered for the Taycan was significantly higher than what CarMax offered for the car. With the tax savings on the new car, it was a no brainer to trade in the Taycan to the Mercedes dealer, and I probably got more than what a private buyer would have paid without any of the hassles of dealing with a private buyer.

 

[wemct]

One thing to note in the case of trading early, if you don't have an allocations yet, you might be looking at years of wait but locked to that dealer. Should you find an allocation elsewhere, you cannot take your trade-in credit. You probably can get the cash out, sans any non-refundable deposit and any payouts to banks the dealer made on trade-in of course, but lose the tax credit.

Yes, you are correct about the allocation. I negotiated and locked in my purchase first (I have a January build date) before I discussed trading in my Taycan.

 

[Jhenson29]

The price the Mercedes dealer offered for the Taycan was significantly higher than what CarMax offered for the car. With the tax savings on the new car, it was a no brainer to trade in the Taycan to the Mercedes dealer, and I probably got more than what a private buyer would have paid without any of the hassles of dealing with a private buyer.

Early trade in works as long as you

1. Don’t need the car in meantime
2. Get your new car quick enough to take advantage (early trade tax credits I’ve seen expire at some point)

Edit to add: I would go by the market over the last year as being normal either.

 

[wemct]

The used car market the past 24 months was crazy. My 2020 Taycan 4S was leased. I would have never thought that I could make $25k above the lease buy out price for a mass produced car that was 32 months old.

 

[whitex]

The used car market the past 24 months was crazy. My 2020 Taycan 4S was leased. I would have never thought that I could make $25k above the lease buy out price for a mass produced car that was 32 months old.

Used car market shot up 40%+ in 2022, though it fell back 19% in October, probably further down now. Out of curiosity, what was your lease term and how much was the down payment (before tax)?

 

[800v]

You understood the tax implications correctly @800v . This is nothing new. Dealers know this and take advantage of this. Tesla in WA has tuned their trade-in system to perfection, essentially always pocketing the 10% (they set the trade-in such that it's a wash, trade-in to them at lower price and get a tax credit, or trade elsewhere without tax credit).

Thank you for your thoughtful and detailed post. But yikes, this is not great. The tax Is a bit like hidden subsidy for dealers lol ;-)

 

[wemct]

Used car market shot up 40%+ in 2022, though it fell back 19% in October, probably further down now. Out of curiosity, what was your lease term and how much was the down payment (before tax)?

I had a 39 month lease with PFS. No money down. Payment $2102.29/month. Original sticker about $142k.

 

[whitex]

I had a 39 month lease with PFS. No money down. Payment $2102.29/month. Original sticker about $142k.

Given those numbers, $25K profit at 32 months is amazing. You probably got out at the peak of the market. ? Will probably never happen again.

 

[Archimedes]

@800v I recently traded in my 2020 Taycan when I ordered a new 2023 AMG SL55. If your goal is to maximize the tax savings on the new car, you should trade in your current Taycan now. The dealer will buy the car now and apply the trade in value against the incoming car. It prevents the risk of the fluctuating valuation that you mentioned in your post. Keep in mind that the value of your current Taycan will continue to go down as time passes (the used car market is also getting cold). You also risk getting a much lower price on the trade in if you get in an accident before you trade in your car. By trading in my car now, I am also saving the monthly payments (and insurance) I would have paid on my Taycan.

I have done the same thing with other cars that I have purchased with a trade in.

There is a time limit within which you have to complete the sale, after which you lose the credit. Pretty risky these days given the repeated supply chain delays.

 

[wemct]

@Archimedes - Six months after I got my Taycan in 2020, I sold my Aston DB11 V12 back to the dealer. They kept the tax credit on the books for 1 year. For my recent purchase, the Mercedes dealer confirmed in writing the January allocation for my new car. The supply chain issues are easing up. In addition to the new AMG SL55, I ordered a new 2023 Porsche Cayenne S Coupe 3 weeks ago. I already have the commission number and confirmation from Porsche NA that it is about to enter production.

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