Selling a car in Illinois

[motogman]

I have some friends in Illinois that want to sell a P Car of some value. They are concerned that in selling the car they will have a substantial tax liability - maybe 20%.

This surprises me. In Michigan, where I live, the buyer pays a sales tax to the state when the title is transfered - and of course the new owner always discloses the full price paid for the car...

Is Illinois different and the seller pays the tax? Is there a capitol gains tax if the value of the car exceeds what was paid many years ago?

Seems strange and I appreciate any info anyone can provide to clarify this situation for me.

[Plecostomus]

What kind of porsche?

[NutmegCarrera]

Sounds odd to me, also.
Here in WI, the capital gains tax applies to real estate. I have not heard of this practice for auto sales.

[Bob Kontak]

Buyer always pays sales tax.

In theory, if you sell something at a flea market or garage sale and make money, you have a liability to the government.

You have given us no order of magnitude. If they are about to make $5k on a car, they should pocket it. If they are going to make a quarter million, then some thinking is involved.

[Bob Kontak]

Originally Posted by NutmegCarrera

Sounds odd to me, also.
Here in WI, the capital gains tax applies to real estate. I have not heard of this practice for auto sales.

Everything one owns for personal use, pleasure, or investment is a capital asset. These include: securities, a residence, household furnishings, a personal car, coin and stamp collections, gems and jewelry, and precious metals.

Capital Gain/Loss - benefits, cost, Capital assets, Determining the basis

Edit: That means if you sell your Mom's old fancy toothpicks for $100, you owe Uncle Sam tax on the sales price less the basis of $2.12 she paid in 1952 when she bought them. However, there are systems in place for sales of big ticket items like real estate to not go unnoticed. Most other stuff is unnoticed, as it is, for the most part, chicken feed dollar wise.

[intakexhaust]

Are you kidding me? There's no mercy from these tax thieves in that state. I don't know of one private individual in Illinois who's ever paid a tax for selling a used car. Jumping titles is another thing but if you do 'x' number of buy / sell vehicle transactions a year, you must get a dealer license, which in itself complicates things such as local codes of being an actual car dealer store front, lot, etc.. Thats kind of hard to convince being a dealer in a typical residential area. Then the issue becomes, if you are a dealer, you don't need to pay taxes on the cars you buy if you use your resale tax number and keep your dealer tags used for those vehicles. When you sell those vehicles, then you collect the sales tax from the buyer for the state, plus it could also be taxable income to your business.

If your seller thinks they have a tax liability, work that percent out to make the difference. Also, capital gains or loss is all negotiable and arguable. A touchy, nervey topic for some. The tough attitude accountant will take every tax break possible, stretch those rules even more and if called to audit, it's negotiated.

[RatBox]

Regarding the $2.12 box of toothpicks from 1952 example. You forgot about the depreciation of the dollar.

If I had to quess , one 1952 dollar probably equates to 100 2011 dollars.

[bigel]

Originally Posted by intakexhaust

Are you kidding me? There's no mercy from these tax thieves in that state. I don't know of one private individual in Illinois who's ever paid a tax for selling a used car.

Here in the great state of NJ used car sales have always been taxable, at least in my memory. It is a sale after all...

[JT912]

No crazy tax issues here in sales-tax-free Oregon.

[mnewport]

Hold on here, don't get so worked up. Private party vehicle sales in Illinois are not assessed tax.

Capital gains is another issue entirely but I think $20k on the sale of an item would fly under the CG limit. I say this because one of my employees just sold a large personal item for $28k, and the accountant advised him no CGT was due.

Of course, do your homework and don't just take my word for it.

Illinois and Crook County certainly bleed their citizens dry, but private party vehicle sales isn't one of them...

[Bob Kontak]

[QUOTE=RatBox;6360474]Regarding the $2.12 box of toothpicks from 1952 example. You forgot about the depreciation of the dollar.

Nope. Cost basis of the asset can be adjusted by certain maintenance, care and storage expenses but not by movement of dollar purchasing value across time. Now, if you financed that $2.12 the interest expense can be absorbed into the toothpick cost basis. Also, if you bought a security vault for the toothpicks, some of the vault costs could be rolled into the toothpicks.

You now want to sell the vault because the toothpicks are gone? The cost basis of the vault must be reduced by the portion of vault costs transferred to the toothpicks.

[Bob Kontak]

Originally Posted by jt912

No crazy tax issues here in sales-tax-free Oregon.

The Feds have laws on gain on sale of capital assets. Period. Sales tax is one thing and gain on sale is another.

[Jack Olsen]

First, they should read this: Illinois Tax Requirements for Vehicles

State sales tax would be the responsibility of the buyer.

Reporting their income to the state and federal government is the responsibility of the seller.

It's tough for me to see why a person selling a luxury car is trying to duck out on his tax responsibilities. Are these guys in dire financial straits?

[Bob Kontak]

Originally Posted by Jack Olsen

First, they should read this: Illinois Tax Requirements for Vehicles

Excellent info. Illinois is quite kind on sales tax. Flat $1,500 on a car $30,000 or more. That's 5%. Flat $1,500 on a $75,000 transaction = 2%. Nice.

Ohio is by county. Many counties have a 7% rate with no cap. That's $5250 on $75,000.

[motogman]

Thanks for the good response and inputs...

Yes, in Illinois the sales tax for used car sales maxes out at $1500 which is a pretty good deal, particular the more expensive the car. The buyer is responsible.

The real issue is capitol gains reporting and taxes.

PHP Code:

First, they should read this: Illinois Tax Requirements for Vehicles

State sales tax would be the responsibility of the buyer. 

Reporting their income to the state and federal government is the responsibility of the seller. 

It's tough for me to see why a person selling a luxury car is trying to duck out on his tax responsibilities. Are these guys in dire financial straits?
__________________
Jack Olsen - 1972 911 'RSR' 


Jack - Nobody said or suggested anyone was trying to "duck out" of tax responsibilities. There is a legitimate concern regarding the tax liability if there has been significant capitol gain and the potential impact on the final financial outcome.

[Bob Kontak]

The issue is capital gains tax liability. You noted that in the first post. They have capital gains considerations. Full stop.

Is there a reason you did not provide the order of magnitude requested in post #4?

Capital gains tax rates flop around as it is a lever pulled by politicians to get votes and/or to appease lobbyists.

Currently, the max they should pay to the US govt would be 15%. I believe this extends through 2012 and is based on income. Lower income can result in 0%.

I suggest they aggressively establish their cost basis. Purchase price plus sales tax and any improvements to the car that are other than short term running maintenance. Oil changes do not count but seat reupholstering and a repaint does. It's similar to a house getting a new roof or new windows - Those costs may be rolled into the basis and provide tax relief.

Jack's comment regarding dodging was unfair. You did not ask how your friends could avoid taxes, you asked for clarity.