Do You Have to Pay Taxes on a Total Loss Vehicle?

The Car Accident Property Damage: How-to Guide is a detailed video series by Andrew Kryder, Chicago car accident attorney and founding partner of The Kryder Law Group, LLC Accident and Injury Lawyers. This series provides step-by-step advice to help you manage the property damage costs after an auto accident, whether it’s repairing your car or purchasing a replacement. If you are wondering about tax liability, this guide answers the question, “Do you have to pay taxes on a total loss vehicle?”

From filing an auto insurance claim to determining the market value of your car, Andy shares how to protect yourself from unnecessary fees. With actionable insights, examples, and money-saving tips, this guide ensures you can handle the aftermath of a non-injury car accident efficiently, effectively, and independently.

Paying Sales Tax When Replacing a Totaled Vehicle

Meet Andy Kryder. “Here’s a tip to make sure you get every dollar you deserve from the insurance company. If your vehicle is considered totaled, make sure the insurance company pays the tax on the purchase of the new vehicle.”

The Tax Obligation for a Replacement Vehicle

Andy begins, “Here’s how it works. Let’s say your car was worth ten thousand dollars. You’re going to get a check from the insurance company and then go buy another ten thousand dollar car. But there’s also going to be tax on that car, and the only reason you have to pay that tax is because someone else caused an accident and totaled your car.”

“That’s why,” he continues, “the insurance company should be responsible for the tax on the purchase of your new car up to the value of your totaled vehicle. So, if you … bought a new hundred thousand dollar car, they are still only going to pay tax on ten thousand dollars, which is the value of your totaled car. Likewise, if you take the ten thousand dollars and only buy a five thousand dollar car, they’re not going to pay taxes based on ten thousand dollars—only on the purchase of the five thousand dollar car.”

Sales Tax for a Replacement Car in a Total Loss Settlement

“But they will pay taxes for a ten thousand dollar car, if that’s what your totaled car was worth.” Andy reminds us, the purpose of “insurance is restoring you to the position you were in before the accident—nothing more and nothing less.”

Maximizing Your Total Settlement

“Make sure you get every dollar you deserve,” Andy concludes. “The taxes on a new car purchase can be worth thousands of dollars, so make sure you ask for it. And if you’ve been injured and have questions about your car accident, our experienced lawyers are here to help you every step of the way.”