Whether you’re selling your old car or buying a used one from a private party, one question always comes up: What about taxes and fees? Who pays what? Are you required to report the sale to the IRS? Do you owe sales tax when buying from a private seller? In this guide, we break it all down for both buyers and sellers—so you can complete your transaction without financial surprises.
1. Do You Pay Taxes When Buying a Car from a Private Seller?
Yes—buyers are almost always required to pay sales tax on a private car purchase. Even though the seller doesn’t charge it, the buyer must pay state and local sales tax when registering the vehicle at the DMV.
Key points:
- Tax is based on sale price (or fair market value in some states)
- Paid by the buyer—not the seller—at the DMV during registration
- Rates vary by state (typically 4%–9%)
2. State-by-State Sales Tax Rates (Examples)
| State | Sales Tax Rate | Notes |
|---|---|---|
| California | 7.25%+ | Calculated at DMV based on purchase price |
| Texas | 6.25% | Minimum taxable value rule applies |
| Florida | 6% + county tax | Max taxable amount may apply |
| New York | 4% + local tax | Proof of sale required |
| Oregon | 0% | No sales tax! |
Tip: Use your local DMV website or salestaxhandbook.com to calculate your state’s rates.
3. What Fees Do Buyers Pay at the DMV?
- 📄 **Title transfer fee** ($10–$100 depending on state)
- 🔖 **License plate or registration fee**
- 🔍 **Emission or safety inspection fee** (if required)
- 💰 **Sales tax on purchase price**
4. Do Sellers Pay Taxes When Selling a Car Privately?
In most cases, no—individual sellers don’t pay sales tax or income tax on a private vehicle sale unless they made a profit.
When sellers may owe tax:
- You bought the car as a “flip” and sold it for profit (may count as business income)
- You sold multiple cars per year (state may consider you a dealer)
- You received significantly more than what you paid (rare for used cars)
Casual sellers usually don’t owe taxes if they sold the car for less than or close to what they paid originally.
5. Do You Have to Report the Sale to the IRS?
If you’re a private individual and did not make a profit, you don’t need to report the sale on your tax return. However, keep a copy of the:
- Bill of sale
- Title transfer
- Any communication proving your sale price
If you sold for profit: You may need to report capital gains on your IRS return (Schedule D).
6. What Is a Bill of Sale and Why It Helps with Taxes
A bill of sale is a written record of the vehicle sale between two parties. It protects both sides from future disputes and helps verify the transaction value in case of a tax audit.
A good bill of sale includes:
- Date of sale
- Buyer and seller full names and addresses
- Vehicle info: VIN, make, model, year
- Purchase price and payment method
- Odometer reading
- Signatures of both parties
7. Can You Avoid Sales Tax on a Used Car?
Legally, no. But there are limited exemptions depending on state:
- Gifts (some states waive tax if it’s a family gift)
- Transfers between spouses
- Inherited vehicles
Never underreport a sale price to avoid taxes—it’s illegal and can result in fines.
8. How to Reduce or Prepare for Tax & Fee Costs
- Research total DMV costs ahead of time
- Negotiate with seller if buyer covers registration
- Use a **Bill of Sale** to document exact amount paid
- In some states, consider **gift transfer** between family if legal
Final Thoughts: Know Before You Owe
Buying or selling a car privately saves money—but only if you know the full cost picture. Buyers should budget for more than just the purchase price, while sellers should understand if taxes apply to their situation. A well-documented, transparent transaction helps both sides avoid surprises later.
When in doubt, check your state’s DMV or tax authority website.