Selling a car for more money. Capital gain?

[VK56VD]

I'm not sure if this has been discussed but it may benefit us all. Lets say one of us on this forum, purchases a used vehicle for $5,000. Less than a year later, sells it for $10,000. By law IRS wants us to report this as a capital gain. I read somewhere that if you own that vehicle for more than 12 months, that extra $5,000 that you sold the vehicle for is no longer a capital gain. Can anyone shed light? I know most don't report this but I'm curious if anyone has ever had an issue with the IRS regarding this. Also, this only applies to a transaction via check where it actually goes through the bank, not a cash transaction that is hard and virtually impossible to trace.

 

[Doog]

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[HTSS_TR]

Originally Posted By: Spartuss
I'm not sure if this has been discussed but it may benefit us all. Lets say one of us on this forum, purchases a used vehicle for $5,000. Less than a year later, sells it for $10,000. By law IRS wants us to report this as a capital gain. I read somewhere that if you own that vehicle for more than 12 months, that extra $5,000 that you sold the vehicle for is no longer a capital gain. Can anyone shed light? I know most don't report this but I'm curious if anyone has ever had an issue with the IRS regarding this. Also, this only applies to a transaction via check where it actually goes through the bank, not a cash transaction that is hard and virtually impossible to trace.

Less than 12 months is short term capitol gain and tax rate is the same as ordinary income, more than 12 months is long term capitol gain with reduced tax rate to as little as 10%.

Most private sellers don't report gain(s) in selling cars. Stock is different, because stock brokers report selling price and value to IRS.

 

[Johnny2Bad]

The question I would ask a tax accountant on this matter is, if you are required to declare a Capital Gain on such a transaction, then could you also declare a Capital Loss should the transaction (or previous / subsequent transactions) result in a sale below the depreciated value.

I'm not convinced that the question could be answered without professional advice based on a taxpayer's individual circumstances. I would think it would revolve around whether the taxpayer is in the business, evan as a private seller, of buying and selling cars. I *am not* a tax professional, so that is pure conjecture.

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For those residing in Canada, just as an FYI, the above would be a factor. And if you were required to declare the sale as a Capital Gain, it would then qualify as eligible for inclusion in your $800,000 lifetime Capital Gains Exemption (max $400,000 per transaction). Note that sale of your Primary Residence (the home you normally reside in) is exempt from Capital Gains under normal circumstances (not engaged in short-term flipping of houses).

If there were to be a taxable Capital Gain (from any type of transaction), then 50% is tax free and the other 50% is taxable.

Most ordinary taxpayers in Canada would have reporting requirements for Capital Gains mostly with stock investments, and losses can be deducted and carried over from year-to-year. Capital Gains within your Registered Retirement Savings Plan (RRSP) are always tax free.

 

[DB_Cooper]

I knew a few car flippers..working from home. Taxes? I don't think so.

 

[Pop_Rivit]

Yes, it's considered a capital gain. Will it get reported? I suppose that depends upon your level of personal honesty and integrity.

 

[Nyati]

Do we get to write off depreciation of our cars?

 

[VK56VD]

Ok, now lets say, the car was bought for $11,000 and sold for $16,000. Won't the bank report the certified check that you deposited for $16,000 since it's over the $10,000 threshold?

 

[zzyzzx]

Originally Posted By: Spartuss
Ok, now lets say, the car was bought for $11,000 and sold for $16,000. Won't the bank report the certified check that you deposited for $16,000 since it's over the $10,000 threshold?


The $10,000 reporting limit is for cash.

 

[Trav]

Who says you only have 5K into it? Figure what you put into it and your labor and its a loss, at least on paper Don't say squat unless audited and then only if they bring it up.
Your not a car dealer, thats not what they are looking for. Every car i ever sold was at a miserable loss. LOL

 

[MarkM66]

Originally Posted By: Nyati
Do we get to write off depreciation of our cars?


Exactly.

 

[stockrex]

I know someone who does this often, he picks up cheap autos und then flips them TAX FREE, sells em for cash, the sad part is that he is getting aid from the state for being low income.

 

[Michael_P]

Net profit comes out after repairs. Most people who re sell cars have lots of repairs in the car [wink wink] prior to selling.

 

[dishdude]

Unless you get a 1099 don't worry about it.

 

[fdcg27]

This is clearly a reportable gain.
This kind of thing is so far off the IRS radar that I wouldn't worry about it.
IRS would have to search state title transfers to even find this type of very rare event.
Also, who can say how much you spent on repairs to make the 5K distressed property into a 10K dreamboat, as others have posted?
Your labor hours can be assigned a reasonable value as well.
This is not the kind of thing that I'd even think of reporting.

 

[MCompact]

Originally Posted By: fdcg27
This is clearly a reportable gain.
This kind of thing is so far off the IRS radar that I wouldn't worry about it.
IRS would have to search state title transfers to even find this type of very rare event.
Also, who can say how much you spent on repairs to make the 5K distressed property into a 10K dreamboat, as others have posted?
Your labor hours can be assigned a reasonable value as well.
This is not the kind of thing that I'd even think of reporting.


^^^ This. Currently the IRS is severely understaffed(and also has to enforce the Obamacare mandates), so even if it WAS on their radar the IRS has nowhere near the resources to investigate vehicle transactions like the one described by the OP.

 

[demarpaint]

Originally Posted By: dishdude
Unless you get a 1099 don't worry about it.


+1

 

[ISO55000]

By the letter of the law cars for personal use are not a capital asset under the statute and not required to be reported as income tax but could follow under misc. income.

If that vehicle is a business vehicle than that’s a capital item but goes to the business. It really depends on how your personal books are set up because there are several different ways to play that scenario and ways to reduce amounts.

Consult with a tax attorney then an accountant like I do- that’s money well spent.

 

[eljefino]

My state specifically says you can't flip more than 5 cars a year without being a dealer, but a car you hold onto for six months is exempt from this rule.

It would be interesting to have a car for nine months, and on a different radar for the state vs feds.

 

[HerrStig]

Originally Posted By: demarpaint
Originally Posted By: dishdude
Unless you get a 1099 don't worry about it.


+1
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