How has the Illinois Trade-In Sales Tax Law Changing for 2020?
Illinois has imposed a car trade-in tax on January 1, 2020. The state did not collect sales tax on your car’s trade-in value, which has acted as credit towards a new vehicle purchase. Sales tax use to only apply to the difference between the determined trade-in value and the new vehicle purchase price. However, since January 1st, state and local sales tax has been applied to any trade-in value above $10,000.
For example, you are an Illinois resident looking to purchase a new vehicle at a $35,000 sale price and your car is valued at $20,000. In 2019, you would only pay sales tax on the $15,000 difference. Combining state and local taxes this is around 6.25%. Before January 1st, this total would be $938. Shift to 2020, the trade-in tax credit of $10,000 will also be taxed plus the $15,000 difference. This results in 6.25% of $25,000 being taxed in this transaction at a total of $1,563. This is $625 more you will have to pay in 2020 for the same purchase.
Before January 1, 2020 After January 1, 2020
New Car Price: $35,000 New Car Price: $35,000
Trade-in Tax Credit: $20,000 Trade-in Tax Credit: $10,000
Taxable Amount $15,000 Taxable Amount $25,000.00
Sales Tax: $938.00 Sales Tax: $1,563.00