selling at an auction, make a profit, capital gains?

[rrcrawford70s]

I am thinking of selling my 911 at one of the auction houses in Pebble Beach in August.

I should make a decent profit..AFTER owning for 12 years, rebuilding motor and the MFI and other things..

After commission, expenses, and paying capital gains, was it worth it VS. private sale?

Whats the best way to reduce my tax?

Has anyone here been down that road?

[kyle242gt]

As a CPA, I can't ask you why you'd voluntarily report a transaction like this, so I won't...

That aside, if the auction house issues a 1099, then you're stuck... perhaps that's your concern?

Were it me, I'd be inclined to list it on Sch C as hobby income, reduce it by the cost of the vehicle as well as fuel, insurance, maintenance for the year of sale, along with minor tool purchases, utilities and overhead, and make a loss out of it... then call it a hobby and limit the loss to zero.

There's always a way to fix it if you try hard enough.

[Bob Kontak]

Hmmmmmm - I am not buying kyle's advice.

Let's say you bought a 1962 two-door Impala that was little more that a rusted frame and body with the front clip and engine missing.

You pay $1,200.

You then dump $30k in parts into restoring the car because you are an awesome wrench and you don't have to pay labor. Oh yeah, you pay a special motor search detective service $4k to find your original big block engine which is in a dune buggy in Mexico. The motor costs you $5k to buy it back then $4k to rebuild it.

All of this costs you a bundle but you have a jewel of a car. Let's say $70k in it and 2500 hours labor.

So the auction house sells it for $130k. Based on the above advice, your tax basis is $1,200 plus the year of sale operational fluff (e.g., $1,000) plus the auction house fee - say 10% - $13,000. OK, say $15k is you tax basis crashed against a $130k sale. That's $115k right up your sphincter into personal income. Um, no.

Deduct every cent from day one that you paid for non-routine maintenance parts and external service providers to refurbish your car. Fair estimates are ok if you don't have the documents. You will get popped in an audit for this (no receipts) if they choose to be jerks, but it is not a crime to be aggressive. It is a crime to be fraudulent.

Gotta eat your labor.

[kyle242gt]

Hey now, that wasn't advice!

[schumicat]

I'd think you would get the $70k you put into it as part of the basis. would only make sense.

Originally Posted by Bob Kontak

Hmmmmmm - I am not buying kyle's advice.

Let's say you bought a 1962 two-door Impala that was little more that a rusted frame and body with the front clip and engine missing.

You pay $1,200.

You then dump $30k in parts into restoring the car because you are an awesome wrench and you don't have to pay labor. Oh yeah, you pay a special motor search detective service $4k to find your original big block engine which is in a dune buggy in Mexico. The motor costs you $5k to buy it back then $4k to rebuild it.

All of this costs you a bundle but you have a jewel of a car. Let's say $70k in it and 2500 hours labor.

So the auction house sells it for $130k. Based on the above advice, your tax basis is $1,200 plus the year of sale operational fluff (e.g., $1,000) plus the auction house fee - say 10% - $13,000. OK, say $15k is you tax basis crashed against a $130k sale. That's $115k right up your sphincter into personal income. Um, no.

Deduct every cent from day one that you paid for non-routine maintenance parts and external service providers to refurbish your car. Fair estimates are ok if you don't have the documents. You will get popped in an audit for this (no receipts) if they choose to be jerks, but it is not a crime to be aggressive. It is a crime to be fraudulent.

Gotta eat your labor.

[fintstone]

Most private sales of cars do not draw attention...as cars generally depreciate. Sale at an auction house will certainly draw attention. If you are agressive, make sure you have receipts.

[Hugh R]

Talk to another CPA, you can put it in some revocable trust with a lawyer and then sell and withdraw the trust and pay no taxes. I made that mistake when I sold my Aston Martin DB4. IIRC, things like showing it at fund raising concours can also lower the taxable value. "Hey, I only used it as a financial vehicle for charity fund raising at charity concours". Talk to a CPA and lawyer BEFORE you auction/sell it.

For example I had something like 1,800 receipts from 1971 until I sold it in 2008. I put them all in an Excel spreadsheet. That $0.49 roll of electrical tape you bought in 1971? You can write off $0.49 against the selling price 35 years later.

[PDACPA]

@rrcrawford

What you have is the sale of a personal asset which is treated as a capital asset. You report it on Schedule D and Form 8949 (the same place you report the sale of stock you sold in your brokerage accounts). Form 8949 reports the details of the sale (dates and amounts) and Schedule D summarizes them and combines with other related Schedule D transactions.

Since you owned it longer than a year, it is long term. The sales price less your cost is your gain or loss. A Gain is taxable and your loss is not (if you end up with a loss, and the auction house reported the sale, make the sales price match the amount you received and they reported to the IRS and your cost basis the same amount so it generates no loss on form 8949. This feeds the IRS computer that you reported the sale and avoids a notice and does not take any unallowed loss.

Your cost basis is the cost you purchased the vehicle for many years ago plus repairs and modifications that you made to the vehicle. The value of your labor is zero, but if you paid a mechanic to do repairs, they will be included in the cost. The commission of the auction house is added to the cost as is shipping to the auction or to the buyer.

Here is a link to the IRS webpage detailing the rules.

Tax Topics - Topic 409 Capital Gains and Losses

I would ask the Auction company if they will issue any IRS reporting forms. I would anticipate they will issue you a 1099 as that is their support of their deduction.

As to the receipts, it would be good to have them. I would make a spreadsheet and list each expense with the dollar amount and mark if I still had the receipt in a column. As long as you can show the majority of the receipts, the IRS will allow them in the event you are audited on the transaction. If you have no receipts and guessed, they will disallow.

I would not report it on Schedule C. That would be used if you were in the business of buying and selling cars and were not incorporated.

All of this being said, most people sell their used cars (and garage sale items) and never report it as they are at a loss and the amounts are minor.

My UserName should give you an idea as to my profession

[Soterik]

Ray,
I was audited on a car sale. Give me a call, I sent you an email.

Eric

[Bob Kontak]

Originally Posted by kyle242gt

Hey now, that wasn't advice!

Correct. It was something to consider. Sorry. I'll edit the comment to reflect that.