Taxes when you sell a car
A car sold for less than you paid for it brings no income tax to pay, and no loss to deduct either. A sale at a profit is a different case, the sales tax on the car belongs to the buyer, and one form can arrive in January that is worth understanding before it does.
Compare the price with what you paid
A gain or a loss
A loss: nothing to pay or deduct
In the IRS's own words
A gain: report it
Form 8949 and Schedule D
The sales tax is the buyer's
Paid when they title the car
Income tax
Selling a car for less than you paid.
That is the case the IRS answers most plainly: there is no tax to pay, and nothing to deduct.
The IRS counts almost everything you own and use for personal purposes as a capital asset, and a car is one. When you sell it, the difference between its basis, which is generally what you paid, and what you sold it for is a capital gain or a capital loss.
A loss here is not a deduction. In the IRS’s words, losses from the sale of personal-use property, such as your home or car, are not tax deductible. It is not a tax bill either: on its page about Form 1099-K, the IRS names a car among the personal items you might sell, and says that if you sold one for less than you paid, there is no tax liability.
So keep what shows what you paid: the bill of sale or the dealer’s paperwork from when you bought the car. It is the number a gain or a loss is measured against, and the one you would need if the question ever came up.
A gain
Selling a car for more than you paid.
Less common, and then the profit is taxable income that goes on your return.
The profit
The IRS says that if you sold a personal item at a gain, the profit is taxable, and the profit is the difference between what you received for it and what you originally paid.
Where it goes
A gain on a personal item is reported on Form 8949, Sales and Other Dispositions of Capital Assets, and on Schedule D of Form 1040, Capital Gains and Losses.
Short or long term
A car held for more than one year before you sell it gives a long-term gain, and one held for a year or less a short-term gain. The IRS counts from the day after you acquired it up to and including the day you sold it, and a lower rate may apply to a net long-term gain.
A car you were given or inherited
The basis is not always what somebody paid. For an asset received as a gift or an inheritance, the IRS points to its Publication 551, Basis of Assets.
Whether your state taxes the gain as well is your state’s question, and its tax agency answers it. When the amount is large or the car’s history is unusual, the IRS’s own pages or a tax professional are the place to settle it, not a page about selling cars.
The 1099-K
The Form 1099-K from a payment app.
If you were paid through an app or an online marketplace, a form may arrive in January, and on its own it does not mean you owe anything.
Payment apps and online marketplaces are required to send a Form 1099-K when the payments you received for goods or services through them total over $20,000 in more than 200 transactions, and the IRS adds that they may send one for lower amounts too. One car paid for through an app can therefore produce a form. Read on irs.gov on 23 October 2026.
The IRS is clear that a payment reported on a Form 1099-K is not taxable just because it is reported. For a car sold at a loss, it gives two ways to show that: report the payment at the top of Schedule 1 of Form 1040, so that you do not pay tax you do not owe, or report the loss on Form 8949, which carries to Schedule D. For a car sold at a gain, the gain goes on Form 8949 and Schedule D.
The amount on the form is the gross payment, before any fees, refunds or discounts, and the IRS says those are not taxable income and can be taken off it. Your own records are what show the difference, and the IRS calls good recordkeeping what supports the income you report.
Money from family or friends given as a gift should not appear on a Form 1099-K at all. If it does, the IRS says to ask the company that issued the form for a corrected one showing zero, and to keep a copy of the original. How an app payment for a car works in the first place is in how to get paid when you sell a car.
Sales tax
Who pays the sales tax on a private sale.
In a private sale it is the buyer's, paid when the car is titled, and here are two states, read on their own sites.
Texas
The Comptroller says a person who buys a motor vehicle in Texas owes the motor vehicle sales tax. A buyer from a private party pays it to the county tax assessor-collector within 30 calendar days of the purchase, with the Application for Texas Title and/or Registration, Form 130-U, signed by the buyer. On a private sale of a used car, the taxable value may be based on the car’s standard presumptive value.
Read on comptroller.texas.gov on 23 October 2026.
California
California calls it use tax. It applies to a car bought from a private party, and the buyer generally pays it when registering the car with the DMV. The rate is the sales tax rate where the car is registered, and it is charged on the total purchase price, including a loan the buyer takes over and the value of anything traded for the car. A car received as a gift, bought from a qualifying family member or inherited is not subject to it.
Read on cdtfa.ca.gov on 23 October 2026.
For any other state, the agency that titles cars will tell you what the buyer pays and when: USA.gov lists the motor vehicle agency for every state. Your part as the seller is to write the real price on the bill of sale. California’s tax agency even explains how a buyer who reported a lower price to the DMV than the one actually paid makes up the difference, which is one more reason the figure on the page should be the one you agreed.
Special cases
A gift, a trade-in and an inherited car.
Each of these changes who owes what, and each has a page of its own.
A gift
No sale price, so no gain or loss on a sale, and the state’s tax on the car falls on the person receiving it; Texas and California both treat a gift between close relatives more lightly than a sale. How Texas and California handle it, and what the IRS says about the federal gift tax, is in selling or gifting a car to a family member.
A trade-in
A dealer sale is taxed differently from a private one. Texas taxes a car bought from a dealer on the price minus any trade-in allowance, while California’s use tax on a private purchase counts a traded car as part of the price. Whether a trade-in saves tax where you live is weighed in private sale, trade-in or instant offer.
An inherited car
The IRS points to Publication 551 for the basis of an inherited asset, and California does not charge use tax on a car received through an inheritance. Who can sell it and how is in selling a car after the owner has died.
Read next
The rest of the sale, once the numbers are clear.
The tax is one line of a private sale. These cover the price and the paperwork around it.
The whole process, in order: how to sell a car privately.
- Private sale, trade-in or instant offer
The three ways out of a car, what each one really pays, the tax rule that can close the gap, and how to work out which is worth it for the car you have.
- How to price a used car for a private sale
How to arrive at an asking price you can defend: three sources, an honest condition grade, the room to negotiate, and when a silent listing means the number is wrong.
- How to prepare a car for sale
What is worth spending money on before you list a car, what is not, and the hour of work that changes how much a buyer believes the rest of your listing.
Frequently asked questions
Do I have to pay taxes when I sell my car?
Not on a sale for less than you paid: the IRS says a car sold at a loss brings no tax liability, and the loss cannot be deducted either. A sale for more than you paid is a capital gain and is taxable. The sales tax on the car is the buyer's, paid when they title it.
Can I deduct the loss when I sell my car for less than I paid?
No. The IRS says losses from the sale of personal-use property, such as your home or car, are not tax deductible.
Do I need to report the sale of my car to the IRS?
If you sold it for more than you paid, yes: the gain goes on Form 8949 and Schedule D. If a payment app or marketplace sent you a Form 1099-K for a car sold at a loss, the IRS gives two ways to show that nothing is owed, at the top of Schedule 1 or on Form 8949.
Will I get a 1099-K for selling my car?
Possibly, if you were paid through a payment app or an online marketplace. They must send one above $20,000 in more than 200 transactions and may send one for less. A form on its own does not mean the payment is taxable.
Who pays sales tax on a private car sale?
The buyer, when they title the car. In Texas a private buyer pays it at the county tax office within 30 days of the purchase; in California the buyer generally pays use tax when registering the car with the DMV.
Write the real price, on a page with the car.
One page with the photographs, the price and the facts from the VIN, for the buyer who pays it. 10 days free.