My name is Pat Manning, and I am the Chairman of your state association. I would like to update you on the changes taking place in our industry starting January 1st.

$10,000 Trade-In Cap
Starting January 1, 2020, the tax credit for a motor vehicle trade-in will be capped at $10,000. For example, a customer who trades in a vehicle valued at $20,000 against the purchase of a $36,000 vehicle currently receives a tax credit for the entire value of the trade-in and pays tax on the $16,000 difference. However, starting January 1^st, the same customer would receive a tax credit for only $10,000 and pay tax on $26,000—a $625 increase.

It is important to note the trade-in cap applies only to the trade of First Division Vehicles.   Under the Illinois Vehicle Code, a First Division Vehicle is defined as a vehicle that is designed for carrying no more than 10 people.  Generally speaking, a First Division vehicles is a passenger vehicle with an enclosed passenger compartment such as a sedan, SUV, or minivan. 

A Second Division Vehicle is defined as a vehicle designed for carrying more than 10 people, designed or used for living quarters, or designed for pulling or carrying freight, cargo, or implements of husbandry (farm equipment). Second Division vehicles include pick-up trucks, heavy-duty trucks, recreational vehicles, and vans designed for commercial use.  

The Department of Revenue will look at pick-up trucks as second division vehicles based on having an open cargo bed, regardless of size or towing capacity and will look at commercial vans as second division vehicles because the enclosed portion of the vehicle behind the front seats is designed and used to carry cargo or equipment.  Conversely, the Department of Revenue looks at an SUV, even one with a trailer hitch and a large Gross Vehicle Weight and towing capacity, as a First Division vehicle, based on having an enclosed passenger compartment.

Furthermore, for dealers who hope to beat the system by taking an advance trade-in this year to apply to a purchase next year, the cap is based on the date of purchase rather than the date of trade.  So if a customer trades in a vehicle in 2019 against a vehicle that he or she purchased in 2020, the trade-in cap rules will apply.  For additional details, the Illinois Department of Revenue Bulletin explaining the trade-in credit cap can be found here.

Thank you to the many dealers who participated in IADA’s advocacy campaign and contacted their legislators and the Governor. IADA will reach out to you again during the Spring Session when we attempt to reverse the trade-in cap.

Documentary Service Fee Increases to $300
Not everything during the Fall Veto Session was doom and gloom. IADA-backed legislation to increase the “Doc Fee” to $300, starting January 1^st, remained intact, despite concern that the Doc Fee increase would get rolled back. The Doc Fee increase will help to reimburse dealers for the ever-expanding list of State and federal mandates related to the sale of motor vehicles.