Buying a Car at the End of the Year? Here's What You Need to Know

The end of the year has traditionally been a time for steep discounts on dealership lots, many from luxury manufacturers but also a handful of others. So many Americans wait until the end of the year or first of the next year to buy that sales in December and January are traditionally 9- to 18-percent higher than average those months.

In December brands and dealerships are motivated to not just meet monthly sales volume targets but also end-of-year expectations in order to gain access to hefty bonuses.

That means that December is a good time to buy, especially the week between Christmas and New Year's Day, which has the highest daily selling rate for vehicles compared to any other week throughout the year.

Additionally, next year's models will already be on the lot, allowing for better deals on current models, especially ones that are being redesigned or discontinued.

"While most brands implement December sales programs, it's important to note that most discounts run through the industry sales close day of January 2. Therefore, you don't have to worry about sacrificing your New Year's Eve celebration to finalize the deal on a new vehicle," Tony Salerno, managing director and practice leader of automotive, advisory and analytics at J.D. Power told Newsweek.

"Almost all brands offer sales incentives towards the end of the year, but December stands out as the primary sales event season for luxury brands."

The final month of the year is also big for SUVs, pickups, and vans weighing over 6,000 pounds because of tax deductions and bonus depreciation. Salerno explained that if you purchase a qualifying SUV worth $50,000 for your sole proprietorship business before the year's end, the potential tax deduction could be as high as $40,000. "However, it's crucial to consult with your tax advisor before making the decision," Salerno says.

Seasonal trends have changed over the last year, demand has softened, and new car inventories have improved enough to where dealers will be more willing to offer good discounts on the sticker price.

"Take a closer look at cash incentives versus low-APR incentives – you might be surprised at what's best for you: In a rising rate environment, low-APR deals will be beneficial for many buyers. Yet, for those buyers able to make higher down payments and pay over fewer years, cash incentives can deliver more total value than lower rates," Mark Pregmon, VP of Consumer Lending at USAA told Newsweek.

"Calculate the true cost of ownership: The average payment on a new car in the U.S. is still above $700, per Experian data. Meanwhile, gas prices continue to be in flux and the cost of insurance is on the rise. Factoring in these needs, along with maintenance costs, will help guide you on what's accessible for your budget and avoid any surprises."

Pregmon also says that if you need to lower your monthly payments a longer-term loan is also an option. Those interest rates are higher, but they do reduce the monthly cost of ownership.

Notably, in 2024 the IRS plans to broaden access to the tax benefit when buying an electric vehicle. Purchasers will be able to use the credit to lower their tax bill or use it at the dealership to directly reduce the price of the car when making the purchase.

"However, purchasing an electric vehicle before the new year may carry several advantages. The current tax credit, which can be up to $7,500, is set to undergo changes in 2024. The list of eligible vehicles may shrink due to anticipated IRS rules excluding certain vehicles. If a buyer has a certain type of vehicle in mind, they may want to buy before the changes take effect," Alison Flores, J.D., manager, The Tax Institute at H&R Block told Newsweek.

It's also worth noting that these considerations do not apply to leases and that businesses that lease clean vehicles to consumers may qualify for a commercial clean vehicles credit. Flores explained that the rules for commercial clean vehicles differ from the rules for the clean vehicle credit available for consumers.

"The commercial clean vehicle credit does not have an AGI (adjusted gross income) limit on buyer eligibility, North American assembly requirement or a maximum vehicle price. Whether a taxpayer can claim the qualified commercial clean vehicle credit in its business depends on who is the owner of the vehicle for federal income tax purposes," said Flores.

Finally, used electric vehicles also qualify for a tax credit, up to $4,000, but it's limited to 30 percent of the vehicle's purchase price and can be claimed once every three years.

This does have an AGI cap of $150,000 for Married Filing Jointly and Qualifying Surviving Spouse, $112,500 for Head of Household, and $75,000 for all other taxpayers. Additionally, the vehicle's sale price must not exceed $25,000, and it has to be at least two years old.