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Will I be taxed on positive equity of a car loan?
I’m looking to sell my vehicle to a dealership and I still have a loan on it. I know I will have positive equity on the loan and I’m looking to just take the money and not roll over into another loan. Will I be taxed on the money the dealership gives me for my vehicle?
Emily Maracle · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
While you will be selling your vehicle to the dealership and profiting, it’s unlikely you’ll be making more than your initial loan amount and the vehicle’s purchase price, meaning you won’t be taxed.
When looking at car ownership, the IRS considers personal vehicles capital assets. Because of this, there are only a few situations where you will be taxed after selling a car. Some common situations include:
- Selling a car for more than the original purchase price
- Trading in a car and purchasing a new one
- Selling a business vehicle
Positive equity is when your car is worth more than what you currently owe on your loan. Typically, positive equity occurs towards the end of the loan term, as you’ve paid enough in interest and principal to offset the initial depreciation of your car.
In the eyes of the IRS, you’ve actually experienced a capital loss and don’t need to report it to the government. While you’re making enough to pay off the remaining balance of your loan and profit, you aren’t making any more than what you’ve already paid for the vehicle.
Finally, since the dealership is buying your car, they’ll likely have to pay some tax or sales tax on it, but it’s not your responsibility as the seller, especially since you paid taxes on the vehicle when you first purchased it.
That said, if you’re nervous about the possibility of an unexpected tax bill, speak with a tax specialist. A specialist can give you the most up-to-date information based on your location and current financial situation.
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