capital gains?
- Thread starter pappentl
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I just met with my accountant a few days ago, and advised him I sold one of my Tigers for a bit more than I bought it for. I don't know how it works in the U.S., but here in Canada, we have to pay capital gains on any profit from the sale of a personal use vehicle. It never used to be like that, but the government saw that collector cars were appreciating, so they naturally have to grab all they can get along the way. In Ontario, we pay 13% provincial and federal sales tax every time a car changes hands, so with the value of Tigers nowadays, the government is getting the equivalent and more, of the original sales price with every transaction, and then they want their personal income tax portion for every lift in value. As well, every time the car changes hands now, the government requires an accredited appraisers value of the car, and the 13% is based on that value or the actual purchase price, whichever is higher. The days of fake receipts are over. If you bought it for less, it doesn't matter to them...pay on the appraised value.... What a great system for them!!! The Canadian government just loves the way the collector market has gone.
My accountant told me I have to carefully put together all costs incurred to buy the car, repair the car, sell the car, including expenses to go to the auction, if that's the way it is sold. I play by the rules, so will make the proper submission.
I only owned the car a couple of years, but understand the length of time you own the car is irrelevant, unless it is a quick flip, in which case they may not accept that it was capital gains. If you bought it in 1975 for $2,000, and sold it for $80,000 today restored, you're paying taxes on the difference less expenses. All that free sweat you put into the car yourself benefits the tax man. If you don't have your receipt, they can apparently deem the start value as $0.00....
My accountant told me I have to carefully put together all costs incurred to buy the car, repair the car, sell the car, including expenses to go to the auction, if that's the way it is sold. I play by the rules, so will make the proper submission.
I only owned the car a couple of years, but understand the length of time you own the car is irrelevant, unless it is a quick flip, in which case they may not accept that it was capital gains. If you bought it in 1975 for $2,000, and sold it for $80,000 today restored, you're paying taxes on the difference less expenses. All that free sweat you put into the car yourself benefits the tax man. If you don't have your receipt, they can apparently deem the start value as $0.00....
Similar Here in the States
In the USA, there are short term and long term capital gains taxes. The rates are different, so it is better to own a car (and be able to prove it) for more than 2 years. All receipts for repairs and replacement parts should be filed away for the day that the car is sold. Maintenance work does not count as a deduction when you sell that car. States may handle capital gains income taxes similar to the Feds, or they may be very different.
Sales tax is handled at the state level. I expect that most states have their own way of dealing with sales tax. When I registered my car here in California (after it had been out of state for decades), I only had to tell them what it was worth. There was no sales tax involved. However, we have registration fees in California based on the car's value. The state has not gotten as sophisticated yet as to require an appraisal.
Also, not every restoration results in the owner being upside down. It depends on the value of the car and how much the owner pays for the car (or how long the owner has owned the car) and how much it costs for the restoration and how long the owner holds onto the car before selling it. But I do agree that in general a person is better off buying a restored car than buying a car and paying to have it restored.
In the USA, there are short term and long term capital gains taxes. The rates are different, so it is better to own a car (and be able to prove it) for more than 2 years. All receipts for repairs and replacement parts should be filed away for the day that the car is sold. Maintenance work does not count as a deduction when you sell that car. States may handle capital gains income taxes similar to the Feds, or they may be very different.
Sales tax is handled at the state level. I expect that most states have their own way of dealing with sales tax. When I registered my car here in California (after it had been out of state for decades), I only had to tell them what it was worth. There was no sales tax involved. However, we have registration fees in California based on the car's value. The state has not gotten as sophisticated yet as to require an appraisal.
Also, not every restoration results in the owner being upside down. It depends on the value of the car and how much the owner pays for the car (or how long the owner has owned the car) and how much it costs for the restoration and how long the owner holds onto the car before selling it. But I do agree that in general a person is better off buying a restored car than buying a car and paying to have it restored.
I am a Canadian and bought my car in 72. As you can imagine it was not expensive in todays dollar terms. With my salary in 72 it was not cheap
My file folder is 3 inches thick with receipts. Rather than give the government 25% capital gains, I will give the car to my brother or best friend, whomever survives me.
Piss on the government and their greedy tax grab
I guess giving them half of what you earn is not enough
My file folder is 3 inches thick with receipts. Rather than give the government 25% capital gains, I will give the car to my brother or best friend, whomever survives me.
Piss on the government and their greedy tax grab
I guess giving them half of what you earn is not enough
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I am an accountant here in the U.S., though not a tax expert. Sale of personal property, such as an auto, is not a reportable and, therefore, taxable event. Don't even bring the subject up with your tax preparer.
Better Check
Here is something from the IRS:
Topic 409 - Capital Gains and Losses
Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the basis in the asset and the amount you sell it for is a capital gain or a capital loss. Generally, an asset's basis is its cost to the owner, but if you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible.
I'm no tax expert nor a lawyer. But the way I read this is that one does owe capital gains if he/she sells a car for more than what it cost. However, one can not claim a capital loss if one sells the car for less than it cost.
Of course, one can choose to not ask their tax preparer if they are afraid of the answer. Ask if you want to make sure you are on the right side of the laws and regulations.
Where did folks find the information that the sale of a car for more than it cost is not a capital gain?
Here is something from the IRS:
Topic 409 - Capital Gains and Losses
Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the basis in the asset and the amount you sell it for is a capital gain or a capital loss. Generally, an asset's basis is its cost to the owner, but if you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible.
I'm no tax expert nor a lawyer. But the way I read this is that one does owe capital gains if he/she sells a car for more than what it cost. However, one can not claim a capital loss if one sells the car for less than it cost.
Of course, one can choose to not ask their tax preparer if they are afraid of the answer. Ask if you want to make sure you are on the right side of the laws and regulations.
Where did folks find the information that the sale of a car for more than it cost is not a capital gain?
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the taxman
I think everything that David posted is correct, you pay both sales tax when you buy the car and capital gains when you sell the car for a higher price than your basis.
There is some art to determining what is 'restoration cost' and what is 'maintenance'.
Depreciation is another discussion.
The money you pay someone else to restore your car is added to the cost basis (as is the sales tax you pay in the beginning) but all your own time counts for nothing.
Also, this is something that has to be considered when decided whether to use an auction as a selling platform as that provides the IRS with a concrete selling price.
Like David I am not a tax accountant.
I think everything that David posted is correct, you pay both sales tax when you buy the car and capital gains when you sell the car for a higher price than your basis.
There is some art to determining what is 'restoration cost' and what is 'maintenance'.
Depreciation is another discussion.
The money you pay someone else to restore your car is added to the cost basis (as is the sales tax you pay in the beginning) but all your own time counts for nothing.
Also, this is something that has to be considered when decided whether to use an auction as a selling platform as that provides the IRS with a concrete selling price.
Like David I am not a tax accountant.
B
big_mike_85614
Guest
Do not mention it
I have a problem with the IRS on an asset where you pay for a capital gain, but you cannot deduct for a capital loss. Do not mention it, and the IRS will never know.
I have a problem with the IRS on an asset where you pay for a capital gain, but you cannot deduct for a capital loss. Do not mention it, and the IRS will never know.
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When you work as an employee, you receive a W-2 which is also sent to the IRS. When you work as an independent contractor you may receive a 1099, which is also reported to the IRS. When you sell your house, the title company will issue you a 1099 which is reported to the IRS. When you sell your frig, or your car, there is no report of the event to the IRS. They have no knowledge. Ebay sales are not reported to the IRS. BMV's do not send reports to the IRS. Your tax preparer has no reason to know, or care, how many cars you have.
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Big Brother is watching you
The buyer might not report the amount paid for the car, but if you deposit the money in your bank account, then there's a record of it. If you ever get audited, and it's a substantial amount (like the sale of a nice Tiger would be), believe me (been there, done that), they're going to call it unreported income and ask you where it came from, and deem it 100% unreported taxable income until you can prove otherwise. Innocent until proven guilty doesn't apply with the IRS, with them it's the opposite, they assume you're cheating (if you have unreported income) and it's up to you to prove you're not. The potential draconian fines and accrued interested, and the hassle of dealing with the IRS in general, are just not worth it.
My accountant agreed with Mike that the profit from the sale of my last Tiger was subject to long term capital gains taxes. Make sure you save every last nickel of receipts for the restoration work and find documentation of your original purchase so you can deduct that from the proceeds when you sell.
Bob K.
B9471705
The buyer might not report the amount paid for the car, but if you deposit the money in your bank account, then there's a record of it. If you ever get audited, and it's a substantial amount (like the sale of a nice Tiger would be), believe me (been there, done that), they're going to call it unreported income and ask you where it came from, and deem it 100% unreported taxable income until you can prove otherwise. Innocent until proven guilty doesn't apply with the IRS, with them it's the opposite, they assume you're cheating (if you have unreported income) and it's up to you to prove you're not. The potential draconian fines and accrued interested, and the hassle of dealing with the IRS in general, are just not worth it.
My accountant agreed with Mike that the profit from the sale of my last Tiger was subject to long term capital gains taxes. Make sure you save every last nickel of receipts for the restoration work and find documentation of your original purchase so you can deduct that from the proceeds when you sell.
Bob K.
B9471705