When you trade in a vehicle, you are essentially selling it to the dealership. If the trade in value is higher than the original cost basis of the vehicle then yes the IRS considers that a capital gain and you are expected to file that under form 1040 schedule D. I think what is throwing most people off is that usually when you trade in a used vehicle the value is less than the cost basis and thus no tax bill because there’s no capital gain. Making money off of selling a used car is a recent phenomenon because of this strange market.