Flipping or selling and taxes

[WANNA930]

Ok recently on I think Chasing Classic Cars was a mention of paying taxes on increased value of car.

I am talking to a buddy and the subject comes up. He laughs and explains an issue he had with taxes. To over simplify he removed say $20K from his bank and a month or so later deposited $30K. His acct brings to his attention he owes taxes on the resold amount. iI guess just like capital gains on a house. It became an issue and I will leave it at that.

Has anyone ever paid taxes on a resold car? It doesn't even have to be a flip as if you bough the car for $10k and now 20 years later it is worth say $100 do you owe US 30%??

I always laugh when I see CASH ONLY on a sale as I once accepted $18k in cash for a car and it was the biggest nightmare. Bank contacted both of our jobs and asked for quite a bit of information. I had been with the bank since the day I was old enough to open an acct. They contacted my mother who was on the acct at that time. At 40 something it was quite funny to get a call from my Mom about my acct activity.

Anyone paid taxes??

[COLB]

never sold a car for a profit.

But I look forward to the opportunity.

[MrBonus]

While I imagine many owners neglect the tax consequences of selling their personal use automobile at a gain, a car is considered a collectible and thus may be subject to the 28% long-term collectible gain rates assuming you hold for longer than a year. However, you are not allowed to claim a capital loss on personal use property.

Obviously, this answer becomes more complex if you are a dealer/professional as they are likely selling inventory, not necessarily a capital asset.

[NYNick]

Crazy.

Small profit, like 10%, there's no way it would be declared. Many people don't even tell the DMV the accurate selling price, so they can avoid paying the large sales tax. This is why people buy cars, don't register them, fix them up and then sell them.

Large profits, like 200-300%? Well, this puts you in the business of buying/selling a product, and I would think this would invoke Capital Gains. But if you incur a loss….

BTW, the IRS is based upon the honor system.

Nick

[techweenie]

I always have enough receipts around to explain/offset any difference. Sadly, its often all valid.

[WANNA930]

With 911 prices tripling in recent years you don't have to be a dealer to obtain those numbers.

Lamborghini Miura bought $200 now $1mil?

I had a R5 Turbo that I bought for $15k sold for near double. Buyer resold years later for almost $60k with no real money invested in car. If I had kept I was looking at a say a $50k profit. I am no dealer but look for good deals.

I agree restorations are a loss 95% of the time.

Too bad I always sell too soon as I just love variety.

[E Sully]

It is not easy avoiding taxes. Banks are required to report transactions of $10,000 and up. Even depositing smaller amounts can cause issues. My wife has told me of customers that have deposited numerous smaller amounts, but due total account activity, they are required to ask the customer for written explanations of how the money was acquired. If the customers that do not comply, the Bank must terminate business with them.
New York DMV does not accept low ball amounts for automobiles. They charge a minimum of book value even if the price paid is lower.

[NYNick]

Originally Posted by E Sully

It is not easy avoiding taxes. Banks are required to report transactions of $10,000 and up. Even depositing smaller amounts can cause issues. My wife has told me of customers that have deposited numerous smaller amounts, but due total account activity, they are required to ask the customer for written explanations of how the money was acquired. If the customers that do not comply, the Bank must terminate business with them.
New York DMV does not accept low ball amounts for automobiles. They charge a minimum of book value even if the price paid is lower.

The NY DMV part is not exactly true Sully.

If you don't give them a sales price, they'll charge you sales tax on their internal book value, which can be high, even for an older car.
If you fill out a Form with the sales price and the sellers signature (within reason), they'll charge you sales tax on that amount.

Otherwise, a 30 year old roller would be charged tax on the same basis as a 30 year old pristine restoration.

[speeder]

Hey Nick, how about a pic of your '09 tt cab? That sounds purty.

[NYNick]

Here you go Speeder!

[Mike80911]

This is interesting and pretty much explains it all
Income Tax Implications of Selling a Used Car at DMV.org: The DMV Made Simple

[G450X]

Originally Posted by Mike80911

This is interesting and pretty much explains it all
Income Tax Implications of Selling a Used Car at DMV.org: The DMV Made Simple

That was a nice & simple (for a change) thread.

Like Techweenie said, if we keep receipts of all the parts and hours of work performed on the car, it would probably offset any potential gain on most cars. It seems component rebuilds like transmission/engine/brakes/suspension, and most part replacements as well as bodywork (paint, panel replacement, dent removal) could also be counted.

I also keep a record of the hours I spend on repairs and, if necessary, will fight for some type of a cost comparison to a basic mechanic's labor rate.

Normal maintenence like oil changes/valve adjustments, etc., does not offset capital gains.

[speeder]

Beautiful car, Nick.

[Matt Monson]

Any time you withdraw or deposit $10k or more your bank reports it to the IRS. I've never been asked to explain a transaction.

When I bought my '85 Carrera I was asked to write a check for $9500 and pay the balance in cash. I assume the seller was not reporting the gains on the sale to the IRS. I paid sales tax on the $9500 car, but not the other parts that came with it.

[wgwollet]

I never made a profit on a car, wish I could.
Sometimes, the IRS tax can apply to anything....cars, betting, horses, homes, planes, boats, it's nothing new....but like Techwinnie reports, usually there is way more debt in owning the car, sales taxes, storage, maintenance, shipping, on and on...that easily offsets your gains......if you have a lot of gains....get a dealers license..

[hbueno]

If the IRS treats an increase in value as a taxable gain, can you deduct anything if you sell at a loss?

Hugo

[Matt Monson]

If the IRS treats an increase in value as a taxable gain, can you deduct anything if you sell at a loss?<br>
<br>
Hugo

No. It is assumed that a vehicle will depreciate in value. If your business and uses it you can treat it as a depreciable asset. Otherwise Joe on the street can't write off the loss in value of a car. And you got use in return for that loss. How much is a mile driven worth?