Double Up on Savings: Combining the Tax Credit on Used Cars with Trade-In Tax Credits

car trade in for used car

If you’re in the market for a used car, taking advantage of the tax credit on used cars and trade-in tax credits can help you save big on your purchase. Buying a used vehicle is a smart financial move, as pre-owned cars are typically much more affordable than brand-new models.

By taking advantage of these tax incentives, you can get behind the wheel of a reliable used car for less. Read on if you’re ready to enjoy huge savings on your next used car purchase!

What is a Used Car Tax Credit?

The used car tax credit is a federal incentive designed to encourage the purchase of pre-owned vehicles. When you buy a qualifying used car, you may be eligible to claim a credit on your tax return, effectively reducing your tax liability for the year. The exact credit amount depends on factors like the car’s age, fuel efficiency, and your individual tax situation.

The used car tax credit is available to vehicles that meet specific criteria. You’ll want to consider the odometer reading, fuel efficiency standards, and the vehicle’s age.

Numerous used cars for sale in Elgin and other cities nationwide will qualify for this credit, making it widely accessible to budget-conscious car shoppers.

It’s worth noting that the used car tax credit isn’t a one-time deal. If you continue to purchase qualifying used vehicles in subsequent years, you can claim the credit again on your tax returns. This makes it a valuable incentive for those who prefer to buy used cars and upgrade every few years.

tax credit on used cars

Trade-In Tax Credit on Used Cars

In addition to the used car tax credit, you can also benefit from trade-in tax credit on used cars. If you have an old car to trade in at the dealership, you can get a tax credit based on the value of your trade-in.

Here’s how it works: when you trade in your old car, the dealership applies the trade-in value towards the purchase price of your used car. In most states, you only pay sales tax on the difference between the new car price and the trade-in value rather than the vehicle’s total price. This can result in significant savings, especially if you have a higher-value trade-in.

In 2022, a new law went into effect in Illinois that benefited retail vehicle buyers. As of January 1st, that year, customers received the full tax credit on their trade-ins, thanks to a provision in Senate Bill 58. This legislation, which had the support of both the Chicago Automobile Trade Association (CATA) and Illinois Automotive Dealers Association, effectively reversed the $10,000 cap on trade-in credits that had been implemented in 2020 as part of Governor Pritzker’s Rebuild Illinois capital infrastructure plan.

For instance, let’s consider a scenario where you’re purchasing a used car for $15,000, and you have a trade-in worth $5,000. Instead of paying sales tax on the full $15,000, you would only be taxed on the remaining $10,000 after the trade-in value is applied. Depending on your local sales tax rate, this could potentially save you hundreds of dollars right off the bat, a prospect that can certainly brighten your day.
used car tax credit
To maximize your trade-in tax credit, it’s crucial to get an accurate appraisal of your current vehicle’s value. Dealerships will often provide a free trade-in valuation, but it’s also a wise move to research your car’s worth using online tools like Kelley Blue Book or NADA Guides. This will equip you with a comprehensive understanding of what your trade-in is truly worth and enable you to negotiate a fair deal.

Combining Used Car & Trade-In Tax Credits

The real magic happens when you combine the used car tax credit with trade-in tax credits. By simultaneously taking advantage of both incentives, you can maximize your savings and make your used car purchase even more affordable.

When you claim the used car tax credit on your annual tax return, you get a discount on the car after the quote. This credit directly reduces your tax liability, putting more money back in your pocket. Combine that with the upfront savings from trading in your old car, and you have a winning strategy for saving on your used car purchase.

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It’s crucial to remember that the specific requirements and amounts for these tax credits can vary depending on your location and individual circumstances. To ensure you’re making the most of these incentives, consult a tax professional or conduct thorough research. This way, you will be confident in understanding how these incentives apply to your unique situation.

Remember, the system is designed to be flexible. In some cases, you may be able to claim both credits even without a trade-in. For instance, if you sell your old car privately and use the proceeds towards your used car purchase, you could still be eligible for the used car tax credit.

Likewise, if you donated your old car to a qualified charity, you can claim a tax deduction for your generosity while simultaneously enjoying the used car tax credit on your new purchase.

Finding Used Cars for Sale in Elgin

If you’re ready to take advantage of these tax credits and start shopping for your next used car, you may wonder where to begin your search. Luckily, there are plenty of options for finding used cars for sale in Elgin and the surrounding areas.

One great place to start is at local dealerships that specialize in pre-owned vehicles. These dealerships often have a wide selection of makes and models to choose from, and their sales staff can help you navigate the tax credit process. They may even offer specific promotions or discounts for buyers looking to combine used cars and trade-in tax credits.

While at a dealership, it’s crucial to inquire about any certified pre-owned (CPO) programs they provide. CPO vehicles are used cars that have undergone a rigorous inspection process and come with additional warranties or guarantees. Although they may be slightly pricier than non-certified used cars, the added peace of mind they offer can often outweigh the extra cost, making them a wise investment.

For the best used cars for sale in Elgin, Illinois, browse through our inventory.

trade in used car for used car
Another option to consider is attending local auto auctions. These events bring together a wide range of used cars in one place, and you may be able to score a great deal if you’re willing to bid competitively. Just be aware that auctions can be fast-paced and somewhat intimidating for first-time buyers, so attending a few as an observer is a good idea before jumping in as a bidder.

Making the Most of Your Used Car Purchase

In addition to taking advantage of tax credits, there are a few other strategies you can employ to get the most out of your used car purchase:
Before you hit the market, have a crystal-clear vision of the car that suits your needs and preferences. Explore various makes and models to find the perfect match that meets your criteria and has a proven track record of reliability.
Determine how much you can comfortably afford to spend on a used car, factoring in the potential savings from tax credits. Stick to your budget to avoid overextending yourself financially.
Don’t hesitate to negotiate, irrespective of whether you’re buying from a dealership or a private seller. Do your homework to understand the fair market value of the car you’re interested in and use that knowledge as leverage in your negotiations.
Before purchasing, obtain a vehicle history report to ensure there are no hidden issues with the car. This report can reveal information about past accidents, maintenance records, and ownership history.
Even if a used car looks great on the surface, it’s always a good idea to have a trusted mechanic thoroughly inspect it. This can help you identify any potential problems and avoid costly surprises down the road.
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If you need to purchase your used car, shop for the best interest rates and loan terms. Credit unions and online lenders often offer competitive rates, so don’t feel limited by the financing options provided by the dealership.
Before you finalize your used car purchase, get quotes from several insurance providers to ensure you get the best coverage at the most affordable price.


Buying a used car is a wise financial decision that can save you thousands of dollars. You can maximize your savings even further by taking advantage of tax credits on used cars and trade-in tax credits. When shopping for used cars in Elgin, explore all your options, research, set a budget, and negotiate wisely to get the best deal on a reliable pre-owned vehicle.

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Frequently Asked Questions

The used car tax credit is a federal incentive that can help you save money when buying a pre-owned vehicle. When you purchase a qualifying used car, you can claim a credit on your tax return, reducing the taxes you owe for that year.
When you trade in your old car at a dealership while buying a used car, the trade-in value is applied to the new vehicle’s purchase price. In most states, you only pay sales tax on the difference between the used car price and the trade-in value, which can lead to significant savings.
Yes! Combining the used car tax credit and the trade-in tax credit allows you to maximize your savings when buying a pre-owned vehicle. The trade-in credit helps you save on sales tax upfront, while the used car tax credit reduces your tax liability when you file your annual tax return.
When shopping for a used car in Elgin, consider visiting local dealerships specializing in pre-owned vehicles, browsing online marketplaces, and attending auto auctions. Be sure to research the vehicles you’re interested in, set a budget, negotiate wisely, and have the car inspected by a trusted mechanic before purchasing.
Buying a used car can be more environmentally friendly than purchasing a new one. Opting for a pre-owned vehicle helps reduce the demand for new car production, which requires a lot of energy and resources. Additionally, keeping a used car on the road longer helps delay the process of vehicles ending up in landfills.

Before finalizing your used car purchase:

  • Get a vehicle history report to check for any hidden issues.
  • Have a mechanic inspect the car thoroughly.
  • Compare insurance quotes from different providers to ensure you get the best coverage at the most affordable price.

Consider the potential savings from tax credits when budgeting for your used car purchase.


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