[2026 Edition] Do You Need to File a Tax Return When Buying or Selling a Used Car? A Complete Guide to Tax Basics and Procedures

Profits from selling a used car are treated as "capital gains" under tax law. Capital gains refer to income generated from transferring (selling) assets, and profits from selling real estate, stocks, precious metals, and similar items are classified in the same way.

However, not all capital gains are taxable. Under tax law, "income from the transfer of movable property normally necessary for daily life" is tax-exempt. "Movable property normally necessary for daily life" refers to furniture and clothing used in everyday life, as well as personal vehicles used for commuting and shopping.

In other words, if you sell a personal vehicle that was used for regular commuting or daily transportation, the profit from that sale is generally tax-exempt and does not require filing a tax return. This is a reassuring point for many people.

However, not all cases are tax-exempt. Depending on the purpose of vehicle use and the sale price, filing a tax return may be necessary in some cases. In the next section, let's take a detailed look at specifically what cases require filing a tax return.

The main cases where a tax return is required when selling a used car are as follows:

When a sole proprietor sells a vehicle that was used for business purposes, the profit from that sale becomes subject to taxation as either business income or transfer income. Vehicles used for business purposes, such as delivery services, sales vehicles, or taxis, do not qualify as "movable property normally necessary for daily life," so a tax return filing is required.

In the case of business vehicles, depreciation is often applied, so the difference between the sale price and the book value (undepreciated balance) is calculated as transfer income. Since this calculation requires specialized knowledge, we recommend consulting with a tax accountant.

If you sell a luxury car, sports car, classic car, or similar vehicle that you owned for hobby or leisure purposes, it may not be recognized as 'movable property ordinarily necessary for daily life.' Special attention is required particularly when the sale price exceeds 300,000 yen per vehicle.

The tax office will comprehensively assess factors such as the type of vehicle, purchase price, and intended use to determine whether it is subject to taxation. Luxury sports cars such as Ferraris and Lamborghinis, as well as rare classic cars, are highly likely to be subject to taxation as "luxury items."

If you repeatedly purchase used cars and resell them in a short period of time to make a profit, this may be considered a "business." Buying and selling for resale purposes is subject to taxation as business income even for individuals, and tax filing is required.

In recent years, the proliferation of internet auctions and flea market apps has made it easy for individuals to buy and sell cars. However, if you are continuously making profits, there is a risk that the tax office will consider it a business. Those who buy and sell several or more vehicles per year need to be especially careful.

If you sell your vehicle at a significantly higher price than the purchase price, it may be subject to taxation even if it was a personal vehicle. Special attention is required particularly for limited edition models or discontinued vehicles that can be sold at premium prices.

However, due to the special deduction (500,000 yen) described later, cases where tax is actually imposed are limited.

When the sale of a used car is subject to taxation, the capital gains are calculated using the following formula.

Capital gains = Sale price - (Acquisition cost + Transfer expenses) - Special deduction ($500,000)

Acquisition cost refers to the expenses incurred when purchasing the vehicle. Specifically, it includes the following:

However, since the concept of depreciation is applied, the calculation is not based on the purchase price as is, but rather on the value considering deterioration over time. Generally, for personal vehicles, depreciation is calculated using the straight-line method over a useful life of 6 years.

Transfer costs refer to the expenses directly incurred when selling a vehicle.

Capital gains are eligible for a special deduction of up to 500,000 yen per year. This deduction applies to the total amount of up to 500,000 yen, even when multiple assets are sold.

For example, let's consider a case where you purchase a car for 3 million yen and sell it for 2 million yen after 5 years.

This $400,000 becomes the taxable amount. However, if the ownership period exceeds 5 years, it is treated as "long-term capital gains" and receives preferential tax rates (15% income tax, 5% resident tax). If within 5 years, it is treated as "short-term capital gains" and regular income tax rates apply.

As reassuring information for many people, tax returns are not required in the following cases.

When you sell a personal vehicle that was used for daily activities such as commuting to work or school, shopping, etc., it is treated as a "movable property normally necessary for daily life" and is therefore tax-exempt. This applies to all vehicles used for general purposes, from compact cars to family cars and minivans.

If you sell your vehicle for less than the purchase price, the capital gain will be negative, and therefore no tax will be imposed. In reality, most used cars are sold for less than their purchase price, so in many cases, filing a tax return is not necessary.

If the sale price per vehicle is 300,000 yen or less, it is generally not subject to taxation. When selling relatively inexpensive vehicles such as light vehicles or older model cars, there is little need to worry about filing a tax return.

For salaried employees and other wage earners, if the total of income other than wages (including capital gains) is 20,000 yen or less per year, filing a tax return is not required. However, even in this case, you may still need to file a residence tax return, so please check with your local municipal office.

Taxes related to buying and selling used cars are not limited to transfer income tax. Here, we will explain the related taxes.

As mentioned above, taxes are levied when capital gains are generated. For long-term capital gains (holding period exceeding 5 years), a total tax rate of 20% is applied, consisting of 15% income tax and 5% residence tax. For short-term capital gains (holding period of 5 years or less), the progressive tax rate is applied by combining with other income.

When an individual sells a personal vehicle, consumption tax is not imposed. However, if a business operator sells a business vehicle or is continuously engaged in buying and selling vehicles, it may be subject to consumption tax.

If you sell your car during the fiscal year, you may receive a refund for the remaining period of automobile tax. This is a tax refund and not considered income, so there is no need to file a tax return. However, some dealerships may include the refund amount in the purchase price, so be sure to confirm this at the time of contract.

Just in case you need to file a tax return, let's review the required documents and the process flow.

As of 2026, online filing using e-Tax has become extremely convenient. With a My Number Card and smartphone, you can easily file from home. Additionally, when you file through e-Tax, if you have a tax refund, there is the benefit of receiving it faster than usual.

While there are no major changes directly affecting used car sales in the 2026 tax system, the following points require attention.

The National Tax Agency is actively promoting the digitalization of tax returns. As of 2026, filing taxes via smartphone has become even more user-friendly, and e-Tax filing using My Number Cards has become the standard. While paper filing is still possible, digital filing offers faster processing and smoother refunds.

The invoice system that began in October 2023 primarily affects transactions between businesses. While there is no direct impact when individuals sell their personal vehicles, if you are selling a business vehicle or continuously buying and selling cars, you may need to issue invoices.

The use of My Number (social security and tax number) in tax procedures is expanding. It is mandatory to include your My Number when filing your tax return, so we recommend obtaining a My Number Card in advance.

In preparation for tax audits, you are required to retain documents such as purchase agreements and receipts for seven years after filing. Digital storage is also permitted, so it's advisable to scan and save them in cloud storage for peace of mind.

So far, we have provided a detailed explanation about tax returns for used car transactions. Finally, we will introduce the benefits of buying and selling used cars with Car Tree.

On Cartree, vehicle details, pricing, and vehicle condition are clearly displayed. Sales contracts are also properly prepared, so even if a tax return becomes necessary, all required documents will be readily available.

Cartree's appraisal system appropriately reflects market prices. Therefore, you can avoid the risk of selling at an extremely high price and incurring unexpected taxation.

The staff at Car Tree has extensive knowledge about buying and selling used cars. We can also answer basic questions about taxes, so please feel free to consult with us if you have any concerns. However, for specific tax consultations, we recommend consulting with a specialist such as a tax accountant.

Car Tree also supports troublesome procedures such as title transfers. Since documents are properly issued after the sale, you can proceed smoothly with the procedures even when tax filing is necessary.

CarTree is a trusted used car buying and selling platform used by many customers. We provide a safe and secure transaction environment while avoiding the common troubles that occur in peer-to-peer transactions.

Here are the key points regarding tax filing for used car transactions.

Cases Where Tax Filing is Not Required (Applies to Most People)

Cases Where Tax Filing Is Required

Key Points for Tax Savings

In most cases, filing a tax return is not required when selling a regular personal vehicle. However, if you sell a luxury car, business vehicle, or engage in buying and selling for resale purposes, you may need to file a tax return. If you're uncertain, we recommend consulting with a tax office or tax accountant.

At Car Tree, we support a highly transparent trading environment and transactions at fair prices. When considering selling your used car, please use Car Tree. With safe and secure transactions, we will connect your precious vehicle to its next owner.