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Thursday, 7 May 2015

So you've picked out a new car and can't wait to call it yours.

But what do you do with your old car—trade it in as cash against your new car, or sell it on your own? While you're likely to get more money by selling it yourself—known in the industry as a "private" sale—it's not always worth the effort. Here's a checklist to consider as you make the decision:

How quickly will your car sell?

You probably want to sell it quickly and collect the cash to help pay for the new car. That will be easier to do if there's a high demand for your used car. But if it's a less popular brand, you may have to wait longer than you'd like to find a buyer. Other reasons for slower sales include:

  • Odd color—Silver, white, and gray are popular colors, but not too many people want to buy a purple, yellow, or orange car.
  • Manual transmission—Fewer and fewer people know how to drive a car with a stick shift, so demand for cars with manual transmission is lower than cars with automatic transmission.
  • Discontinued brand—In recent years, several manufacturers have either dropped one of their vehicle brands, or stopped selling in the United States. Even if you think you have a great vehicle, it's going to be hard to persuade someone else to buy it if the manufacturer no longer operates in the country.

Could you get more in a private sale?

The newer your car, the higher its value, and the larger the spread between what you can sell it for privately and what you'll get trading it in. For example, a 2011 sedan may sell for $1,600 more privately than you'd get as a trade-in, while a 2007 version sells for about $1,100 more. An older car may only be worth just a couple hundred extra dollars.

What about vehicle sales taxes?

Often overlooked in making the trade-or-sell calculation is the impact of sales taxes. Whatever you get for your trade-in will lower your total sales tax bill, depending on the state.

For example, if you buy a $25,000 car and get $10,000 for your trade-in, you'll pay tax on $15,000, not $25,000. In a state with a 7 percent sales tax, you just saved yourself $700. So in the case of a car that you could sell privately for $1,000 more than you'd get as a trade-in, the net gain would only be $300.

But taxes on car sales vary quite a bit, not only between states but also within a state. That's because some counties add sizable taxes of their own, while other counties don't add any new taxes. Check your local taxes to see if they should factor in your decision to trade or sell.

What's your time worth?

Selling a car on your own can be time-consuming. Some of the things you'll have to do include:

  • Cleaning and repairing the car to get into selling shape
  • Taking pictures of the vehicle and writing up a description for ads
  • Figuring out licensing and title documentation (and collecting taxes to pay the state in some instances)
  • Responding to emails and phone calls from interested parties
  • Granting test drives
  • Arranging for the buyer's mechanic to check it over before purchase

If you've sold a car before or have someone who can help and there's enough money at stake, go ahead. But if you're not comfortable with selling a car privately, there are other alternatives to consider.

Consider donating or consigning

You can donate a car to a nonprofit organization, and may even reduce your taxes by doing so. But the rules have tightened on how much you can deduct, compared to previous years. While you used to be able to claim the donation was worth the car's "fair market value," the IRS changed the rule to deducting only what the charity was able to sell the car for, if it was worth more than $500. Alternatively, if you could prove the charity used the car in its business, you could claim the "fair market value."

In other words, you're likely no longer able to get a big tax break anymore. In any case, you should consult your tax advisor to determine the impact the taxes will have on your own personal situation.

If on the other hand, you've got a rare and valuable car that you don't want to sell on your own—an old classic Porsche, for example—you might find a place that sells cars on consignment. They'll take a percentage of the closing cost, but you'll avoid all the work of selling it yourself.

 

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