Tips on Buying Cars: taxes on cash incentives, leaseguide, cash incentives

Question
Hello Al,  As far as a cash incentive goes does it get subtracted from the vehicle price before or after being taxed.  Right now I have a deal working with a $3,250 cash incentive.  My salesman says the incentive gets taxed and then deducted from the total price.  Is that right?  I am in Connecticut.

Answer
David:

Yes, a rebate or cash incentive is taxed first. Then the remainder is deducted from the price of the vehicle.

Looking at it another way, the the entire price of the vehicle, including rebate, is taxed. Then the rebate is subtracted.

Rebates and incentives are not price reductions. They are more like down payments. When you make a down payment on a car, you are not lowering the taxable price, but merely pre-paying some of what you owe.

I hope this answers your question.

Al
www.LeaseGuide.com