CHICAGO (WLS) -- Federal data shows used car prices have soared, but a new law could save you quite a bit of cash.
If you're in the market for a new car and will be trading in your old one, a new law eliminates a $10,000 credit cap that was set in 2020 as part of the Rebuild Illinois capital plan.
"The dealers and the associations and the consumer groups tried to get that reversed for a couple years because it's a good deal for the consumer to get a full tax credit on the purchase," said Bill Haggerty, dealer at Haggerty Buick GMC.
"It couldn't be better timing because the value of people's trade-ins has never been higher because of the situation in the automobile market right now," said Dave Sloan, president of the Chicago Automobile Trade Association.
Here's how the law works: If you're buying a car for $40,000 and your trade in is worth $20,000, you only have to pay tax on the difference, which in this case is $20,000.
When the cap was in place, you would only be exempt from $10,000 regardless of how much your trade in was worth; in the above example that would have been $30,000 instead of $20,000.
Depending on where you live the tax could be 7-10%, so that's a lot of money.
The trade off to eliminate the tax cap was to slightly increase the tax on private car sales. Dealers say it's more convenient and safer to trade your vehicle at the dealership.
"It's just easier for the customer, there's a lot less risk than having someone come to your house and test driving your car, there's a lot of risk there, especially now," Sloan said.
Car buyers don't need to do anything to receive the full tax credit; it will automatically be added in at the time of purchase.
New Illinois law removes tax credit cap when you trade in car while buying new vehicle
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