Trade-in: New Illinois law removes cap on vehicle trade-in tax credit when buying a new car

CHICAGO (WLS) — Federal data shows used car prices have skyrocketed, but a new law could save you quite a bit of money.

If you’re looking for a new car and will be trading in your old one, a new law eliminates the $10,000 credit cap that was set in 2020 under the Rebuild Illinois capital plan.

“Dealers, associations and consumer groups have been trying to reverse this trend for a few years because it’s a good deal for the consumer to get a full tax credit on the purchase,” said Bill Haggerty, dealer at Haggerty Buick GMC.

“This couldn’t be a better time because the value of people’s trades has never been higher due to the current situation in the auto market,” said Dave Sloan, president of the Chicago Automobile Trade Association.

Here’s how the law works: If you buy a car for $40,000 and your trade-in is worth $20,000, you only have to pay tax on the difference, which in this case is $20,000.

When the cap was in place, you would only be exempt for $10,000, regardless of the value of your trade; in the example above, it would have been $30,000 instead of $20,000.

Depending on where you live, the tax can be 7-10%, which is a lot of money.

The compromise to eliminate the tax cap was to slightly increase the tax on passenger car sales. Dealers say it’s more convenient and safer to trade in your vehicle at the dealership.

“It’s just easier for the customer, there’s a lot less risk than having someone come to your house and try to drive your car, there’s a lot of risk there, especially now,” Sloan said.

Car buyers don’t have to do anything to receive the full tax credit. it will be automatically added at the time of purchase.

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