Forgetting the dealership’s sales tax advantage
In the majority of states, you pay sales tax on the difference between the price of the new car and the value of your trade-in. For example, in a state with a 5 percent sales tax, if you buy a $30,000 car and trade in your $20,000 car, you will only pay sales tax on the $10,000 difference, meaning $500.
However, if you sell your old car privately, you will pay $1,500 in sales tax on the entire $30,000 cost of the new car. That means you will have to get $21,000 in your private party sale just to break even. If you doubt you can do better than this, you should probably trade your vehicle at the dealership.
