Did Anyone Pay Capital Gains Tax on Sale?
12-20-2014, 11:34 PM
#21
Drifting
Dang, I thought I was the only one stupid enough to pay. well maybe stupid isn't the right word.
I am self employed so I set up and LLC that pays for anything that I plan on selling later on. Every car that I bought, fixed up and flipped, I paid taxes on. I don't know exactly how my CPA classifies them, if it's a capital gain or income... I never asked, but i know the guberment got their share.
I am self employed so I set up and LLC that pays for anything that I plan on selling later on. Every car that I bought, fixed up and flipped, I paid taxes on. I don't know exactly how my CPA classifies them, if it's a capital gain or income... I never asked, but i know the guberment got their share.
12-21-2014, 08:13 AM
#22
Safety Car
Actually the GOP has gutted the IRS. They're even thinking of instituting a 4-day work week. There's almost no chance of an audit at this point. This will be the wildest tax season ever.
Richard
Richard
12-21-2014, 08:16 AM
#23
Team Owner
I have never meet anyone who made money on the sale of their old car.
12-21-2014, 08:18 AM
#24
Team Owner
Nearly all of the Federal gov't has had flex-time now for like "forever". 4 ten hour days or other arrangements are quite common now; as is 'telework'. And the IRS is finally getting its act together with state-of-the-art automation. I wouldn't count on not getting audited. I've been audited with IT consulting business 4 times - letter audits only. If you get a TCA (Taxpayer Compliance Audit) then you better lawyer-up....unless you are a fanatic about record keeping and tax law adherence.
I bought my '66 Mustang convertible in 2000 for $17,000 put $3,000 in it and sold it in 2007 for $25,000. There are plenty of people who make a living out of buying/selling old cars.
I bought my '66 Mustang convertible in 2000 for $17,000 put $3,000 in it and sold it in 2007 for $25,000. There are plenty of people who make a living out of buying/selling old cars.
12-21-2014, 08:19 AM
#25
Team Owner
12-21-2014, 08:40 AM
#26
Melting Slicks
There are plenty of guys out there that are smart enough to buy a car that's all done and refrain from spending a lot of their own money on it after. Those are the guys that sell for a profit. I did that with a 55 Chevy. I enjoyed it for 4 year and sold it for 5K more than I paid for it and other than oil and gas I never put a dime into it. Now I have a 67 Corvette Coupe that I have more money into than I will ever get back. You win some you lose some. The IRS won't let you right off your loss on a car so why should you have to pay for the profit on one. Over the years I have certainly lost more on cars than I've made. 
12-21-2014, 08:42 AM
#27
Instructor
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My career spanned 34+ years with the FBI, Defense and then Office of Management and Budget in the White House. When I left in '06, I was working 70 hour weeks plus 24x7 Blackberry time.
It's too easy to take pot shots at government workers because their efforts are confused with lame policies.
Last edited by gschlarman; 12-21-2014 at 08:43 AM. Reason: Typo
12-21-2014, 08:43 AM
#28
Le Mans Master
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St. Jude Donor '11-'12-'13-'14-'15-'16-'17-‘18-'19-'20-'21-'22-'23-'24
There are plenty of guys out there that are smart enough to buy a car that's all done and refrain from spending a lot of their own money on it after. Those are the guys that sell for a profit. I did that with a 55 Chevy. I enjoyed it for 4 year and sold it for 5K more than I paid for it and other than oil and gas I never put a dime into it. Now I have a 67 Corvette Coupe that I have more money into than I will ever get back. You win some you lose some. The IRS won't let you right off your loss on a car so why should you have to pay for the profit on one. Over the years I have certainly lost more than I've made.
12-21-2014, 10:51 AM
#29
Team Owner
Now that's funny. Not.
My career spanned 34+ years with the FBI, Defense and then Office of Management and Budget in the White House. When I left in '06, I was working 70 hour weeks plus 24x7 Blackberry time.
It's too easy to take pot shots at government workers because their efforts are confused with lame policies.
My career spanned 34+ years with the FBI, Defense and then Office of Management and Budget in the White House. When I left in '06, I was working 70 hour weeks plus 24x7 Blackberry time.
It's too easy to take pot shots at government workers because their efforts are confused with lame policies.
12-21-2014, 11:53 AM
#30
Racer
At least the OP's original question had something to do with Corvettes. Your remarks, on the other hand, are completely false and have no business being on any forum, much less one dedicated to Corvettes.
12-21-2014, 03:50 PM
#31
Race Director
I have a friend/fellow club member who is a CPA and partner in a high powered accounting/tax firm serving some very successful individuals and companies here in the Silicon Valley area. He told me he intentionally reported and paid taxes on the sale of an early Porsche 911 that he had owned for years, even though his professional opinion was that the odds of his getting audited/caught were small.
He did so because his professional reputation was worth more to him than the taxes he paid on the sale.
Smart man!
He did so because his professional reputation was worth more to him than the taxes he paid on the sale.
Smart man!
12-21-2014, 10:03 PM
#32
Instructor
I don't know anyone that's paid capital gains tax on the sale of a car. I think very few individuals make money on the sale of a car. However I expect to pay hefty gains on my current project when sold and therefore have kept all receipts.
My wife is a CPA and we pay someone to prepare our tax filing because of all the nuances of the tax code and her specialty is corporate accounting, but I'll give you my take on it.
Generally speaking, you are obligated to pay tax on capital gains from the sale of stuff (houses, goods, cars, securities, etc). The sale of some stuff is harder for the gov't to track than others. Securities is pretty easy since your broker or whoever must reports all transactions and they are unbiased as to your personal position.
There's usually no third party involved in selling a car so you are mostly on the honor system to report your gains, however, a bank deposit of > $10K CASH per year must be reported to the IRS. Forget about breaking it up in 2 $5000 deposits as it will will still get reported.
I don't know if depositing >10K increases your chances of being audited.
How did you receive payment for the car? Check, cash (did you deposit the cash in the bank?). You might want to think about this.
Now as for cost basis, routine repairs (labor and parts), insurance, gas, etc. do not add to the cost basis of the car and are not tax deductible.
Enter the gray area (or at least what needs to be clarified by an expert), a paint job or new interior certainly increases the value of the car and may ( I say may because I don't have the final say) be added to the cost basis. Best to seek the advise of an accountant, or at the very least, do some research on the internet and document your findings to backup your decision of what you report. You may call the IRS too for clarification and they usually have a document somewhere online to give guidance.
I gave you no definitive answer, but hope this helps.
Ken
My wife is a CPA and we pay someone to prepare our tax filing because of all the nuances of the tax code and her specialty is corporate accounting, but I'll give you my take on it.
Generally speaking, you are obligated to pay tax on capital gains from the sale of stuff (houses, goods, cars, securities, etc). The sale of some stuff is harder for the gov't to track than others. Securities is pretty easy since your broker or whoever must reports all transactions and they are unbiased as to your personal position.
There's usually no third party involved in selling a car so you are mostly on the honor system to report your gains, however, a bank deposit of > $10K CASH per year must be reported to the IRS. Forget about breaking it up in 2 $5000 deposits as it will will still get reported.
I don't know if depositing >10K increases your chances of being audited.
How did you receive payment for the car? Check, cash (did you deposit the cash in the bank?). You might want to think about this.
Now as for cost basis, routine repairs (labor and parts), insurance, gas, etc. do not add to the cost basis of the car and are not tax deductible.
Enter the gray area (or at least what needs to be clarified by an expert), a paint job or new interior certainly increases the value of the car and may ( I say may because I don't have the final say) be added to the cost basis. Best to seek the advise of an accountant, or at the very least, do some research on the internet and document your findings to backup your decision of what you report. You may call the IRS too for clarification and they usually have a document somewhere online to give guidance.
I gave you no definitive answer, but hope this helps.
Ken
12-22-2014, 07:48 AM
#34
Melting Slicks
It's not >$10,000 per year. It's >$9999 per day or visit to that banking institution. It doesn't matter if it's broken up into multiple deposits in multiple accounts in multiple locations. It's all tracked by your SS #. However it's pretty difficult to track different banks.
Here's a question I asked my tax accountant:
"I’m currently restoring and old car I bought 2 years ago for $20K. I’ve spent about $70K in parts to restore it (I have receipts to prove) + my own labor. If I sell it for say $100K, would I be obligated to pay long term capital gains (15%) on the $10K in profit? Or, would the profit be taxed at our income tax rate? If I had bought, restored and sold the car within 12 months, would I then have to pay short term capital gains tax?"
And here is her reply:
"The car would be defined as investment property and the gain would be treated as a capital gain subject to the terms for the applicable holding period –less than a year short term and more than one year would be considered long term. Your labor of course unfortunately provides you with no additional basis to use against the gain. Sounds like a fun thing to have done!"
12-22-2014, 08:44 AM
#35
Team Owner
That is precisely my understanding of how it should work...
I think its quite straight forward.
The real 900 pound gorilla in the room seems to be, "....can you NOT pay the tax and get away with it?"
And the answer seems to be...yes, in many cases, but you are taking a major risk in running afoul of the IRS. And, if they catch you years afterwards, it won't be the initial tax that kills you -- it'll be the penalties and interest.
=======================
As to the second part of the question - "...should I file with shoddy records?"
I keep every receipt for every nut/bolt/part I buy.....but -- even if I didn't I would do a reasonable estimate of what my enhanced tax basis would be. Documentation always wins but if you had to fight it out later on with the IRS I think you could justify most or all of it. The IRS hardly ever specifies what precise form such documentation has to take. Put yourself a little log together of the biggest things with item description/date purchased/place purchased/amount paid and approximations are better than nothing. Labor (not your own) that you paid for counts too. You should be fine if you just show a little "due diligence" with record keeping.
=====================
I think its quite straight forward.
The real 900 pound gorilla in the room seems to be, "....can you NOT pay the tax and get away with it?"
And the answer seems to be...yes, in many cases, but you are taking a major risk in running afoul of the IRS. And, if they catch you years afterwards, it won't be the initial tax that kills you -- it'll be the penalties and interest.
=======================
As to the second part of the question - "...should I file with shoddy records?"
I keep every receipt for every nut/bolt/part I buy.....but -- even if I didn't I would do a reasonable estimate of what my enhanced tax basis would be. Documentation always wins but if you had to fight it out later on with the IRS I think you could justify most or all of it. The IRS hardly ever specifies what precise form such documentation has to take. Put yourself a little log together of the biggest things with item description/date purchased/place purchased/amount paid and approximations are better than nothing. Labor (not your own) that you paid for counts too. You should be fine if you just show a little "due diligence" with record keeping.
=====================
Last edited by Frankie the Fink; 12-22-2014 at 10:18 AM.
12-22-2014, 01:11 PM
#36
Race Director
Put it in a trust and leave it to your spouse/kids/whomever. That way it gets revalued for tax purposes as of the time of your passing, not the original price.
See - you can't cheat death but you can avoid taxes - in the long run, that is!
See - you can't cheat death but you can avoid taxes - in the long run, that is!
12-22-2014, 01:18 PM
#37
Melting Slicks
And to open up the can of worm's a little farther, don't forget when documenting your cost basis accounting for parts and services you purchased, you should have paid sales(use) tax on ALL of those items. You may have thought you avoided sales tax on all those parts you bought out of state and had mailed to you. You may have "avoided" the tax, but you were just put on the honor system and are still legally obligated to pay the sales tax to your home state (at least in NJ) if there was no nexus in place (except if you live in the 5 states that don't collect sales tax). I doubt very few people are (or want to be) aware of this.
Now you can avoid the parts/services sales tax if you are in the business of buying, restoring, and selling cars, but now you must report your profit as income which will likely be higher than the long term investment income tax rate of 15%.
As I've heard politicians say, "if everyone paid their full legal tax obligation, there would be no budget deficit". Probably pretty close to true, IMO.
Now you can avoid the parts/services sales tax if you are in the business of buying, restoring, and selling cars, but now you must report your profit as income which will likely be higher than the long term investment income tax rate of 15%.
As I've heard politicians say, "if everyone paid their full legal tax obligation, there would be no budget deficit". Probably pretty close to true, IMO.
12-22-2014, 04:05 PM
#39
Melting Slicks
12-22-2014, 04:27 PM
#40
Melting Slicks
Yes, and then some brainchildren "manipulate" the deposit of the cash into the banking system in an effort to avoid the reporting requirements defined by the Bank Secrecy Act.
They are under the faulty assumption that if they keep the amounts below what they believe the threshold of reporting to be, or deposit sums in various banks that they will somehow "outsmart" the systems designed to catch such transactions.
Rest assured, they will not outsmart the detection methods, and more importantly, now they are no longer simply a tax cheat, but have transcended or graduated to committing a criminal offense known as structuring, which now makes them a criminal as well as a cheat.
Additionally, the fine that is likely levied, if caught, just adds insult to injury, as it is usually equal to the total amount the "crook" was looking to hide in the first place.
I guess if one has no integrity to begin with it's not such a big deal, but if you are a person who normally knows right from wrong, why sacrifice your morals over some money?
Is saving 15% of some amount worth becoming a cheat and a criminal in order to get away with it?
Are these things something you would be proud of if your spouse, son or daughter knew what you were doing?
I am no Dudley Do-Right, but I agree with many of the earlier responses that simply say pay what is due.
So:
1- Keep good records of your purchase and improvements.
2- Deposit the sale proceeds as you would any other funds.
3- Accurately complete the Capital Gains reporting form.
4- Retain all Documentation
5- Pay the Tax.
6- Enjoy the car and the work that you did, and fun that you had.
Oh, and sleep soundly every night.
Marty
They are under the faulty assumption that if they keep the amounts below what they believe the threshold of reporting to be, or deposit sums in various banks that they will somehow "outsmart" the systems designed to catch such transactions.
Rest assured, they will not outsmart the detection methods, and more importantly, now they are no longer simply a tax cheat, but have transcended or graduated to committing a criminal offense known as structuring, which now makes them a criminal as well as a cheat.
Additionally, the fine that is likely levied, if caught, just adds insult to injury, as it is usually equal to the total amount the "crook" was looking to hide in the first place.
I guess if one has no integrity to begin with it's not such a big deal, but if you are a person who normally knows right from wrong, why sacrifice your morals over some money?
Is saving 15% of some amount worth becoming a cheat and a criminal in order to get away with it?
Are these things something you would be proud of if your spouse, son or daughter knew what you were doing?
I am no Dudley Do-Right, but I agree with many of the earlier responses that simply say pay what is due.
So:
1- Keep good records of your purchase and improvements.
2- Deposit the sale proceeds as you would any other funds.
3- Accurately complete the Capital Gains reporting form.
4- Retain all Documentation
5- Pay the Tax.
6- Enjoy the car and the work that you did, and fun that you had.
Oh, and sleep soundly every night.
Marty