Originally Posted by jeremyc74
It comes off the sales tax. When you trade a vehicle in, the trade in has already been taxed once. The amount the dealer is giving you for the trade in gets taken off before the sale tax is calculated, so you don't pay sales tax on that amount.
That might vary from state to state, but I think most are like this.
What it comes down to is that if your state charge around 6%, and the dealer is willing to give you $17k for a car, you need to sell it private party for at least $18k to even break even.
as I stated above I think in most states you can do this on your tax return thus negating any trade-in tax advantage.