Question about taxes on a sale price

[gkent]

As a "business", you can charge the expenses against the revenue. The difference is considered profit and is taxable income. Normally you would deduct the tax paid on the parts on an ongoing basis (monthly, quarterly or whatever) and when sold the buyer would pay the tax on the selling price when they register the vehicle.

In the case of a non-business sale, you're pretty much at the mercy of the state. But in reality, how much tax will you actually pay? Its all based on your income and the tax bracket you fall into. And I think just about any auditor would agree that you have some portion of the value to deduct. For example, if you sell a nice hotrod for $40k, there has to be a reasonable portion of that where tax has been paid on the initial purchase as well as any parts that added to the value - a $40k hotrod doesn't materialize out of thin air !!

A government tax auditor once told me "if you ever get audited, take the case to court" because they initially go for the throat to scare the crap out of you so you don't do it again. The majority of the time the amount gets reduced to more realistic amounts - people do make honest mistakes!

 

[ws23jrt]

It's unfortunate that one's own labor has -no value- when establishing a basis value. However-spent money -for others to do the work is accepted.

Another sticky wicket is -enduring an audit can be very costly in time and effort if nothing else.
When one comes to the IRS --in an audit--one is guilty just coming in the door. It can be a huge expensive mess to get back out of that door.

 

[gkent]

What about progress pictures vs receipts?

This doesn't cut it for the simple reason that the profit from the sale is your "wage" - which is taxable.

 

[GetX'd]

This doesn't cut it for the simple reason that the profit from the sale is your "wage" - which is taxable.

I don’t mean that - if you didn’t do the work but had pictures of different stages of your restoration along with some receipts for major individual things like the engine, drivetrain etc. No wages there except what you paid out.

 

[gkent]

I would think if you took pictures you probably would have kept the bills !!!

 

[hunt2elk]

a $40k hotrod doesn't materialize out of thin air !!

It does if you paid cash for the car.

 

[ws23jrt]

It does if you paid cash for the car.

A purchase document for a 40K car becomes a new basis value to work from. --Invest 20K and sell it for 50K would net a negative 10K.
Try to get that 10K back from the IRS as a capital loss. (Taxing is a one way street by any measure).
A personal gain is to be shared with the government. A personal loss like this (for an individual) is just that.

 

[gkent]

It does if you paid cash for the car.

Well if you paid cash then tax is due so stop whining and pay up! Hey, I like a "cash" deal as much as the next guy BUT taxes pay for **** we all use so don't feel so bad when you get caught with your pants down. Chances are you would have made a lot of those deals prior to finally being caught and what you have to pay is only a small fraction of what you should be paying.

 

[gkent]

A purchase document for a 40K car becomes a new basis value to work from. --Invest 20K and sell it for 50K would net a negative 10K.
Try to get that 10K back from the IRS as a capital loss. (Taxing is a one way street by any measure).
A personal gain is to be shared with the government. A personal loss like this (for an individual) is just that.

I think you're confusing "capital gains" with "taxable income" . The profit from the sale of a vehicle is taxable income - which you can't claim a loss against, and rightly so or every used vehicle that changes hands in America could be claimed as a loss against income. What qualifies as "capital property" is clearly defined and losses can be claimed against gains for a number of years. BUT, if you invest in capital property and lose it all, you can't right off the loss unless somewhere else you make a gain. This also makes sense or people would be pissing money away on ridiculous investments with no personal risk.

 

[slimt]

Why would you pay tax on something you sold ? It's usually the buyer's responsibility to pay a tax when registering, or transferring ownership on a vehicle. I would think when selling a restored classic vehicle, you should be able to take a credit on your taxes for a "loss", as I don't know too many folks that ever make money on these sales...

Like up here in Some parts of Canada you have to as well. Not sure about here in Alberta though .

 

[NJRR]

Well if you paid cash then tax is due so stop whining and pay up! Hey, I like a "cash" deal as much as the next guy BUT taxes pay for **** we all use so don't feel so bad when you get caught with your pants down. Chances are you would have made a lot of those deals prior to finally being caught and what you have to pay is only a small fraction of what you should be paying.

I think you are confused, or maybe in ON (Ontario?) it's different than here in the States. A capital gain is when you buy something and sell it for more money ( a house, piece of art, collectable car, etc), and a loss is when you sell it for less money or it gets destroyed with no recovery of it's worth from insurance ( eg a house fire where the insurance doesn't cover the value). Profits on a car sold for more than it's cost would be taxed as a capital gain here and not as income.

As for sales tax, the gov't taxes cars here every time it is sold, so it is multiple taxation over the life of a car. In business, the end user only pays tax on an item once. I buy wholesale and resell items retail. I don't pay sales tax. My customer does when he buys from me. Perpetual sales tax over the life of a car is unfair taxation.

You claim "taxes pay for **** we all use so don't feel so bad when you get caught with your pants down". However, politicians and govt waste our tax dollars left and right and we have no say in it. So, minimizing the amount of tax you pay to the govt is an individual's right even if it doesn't meet up to your high moral standards !!!!

 

[Richard Cranium]

I've sold a bunch of cars (most all break even or at a loss) and maybe I've been lucky, but I've had no one question me about funds from large wire transfers and large bank checks.

 

[ws23jrt]

I think you're confusing "capital gains" with "taxable income" . The profit from the sale of a vehicle is taxable income - which you can't claim a loss against, and rightly so or every used vehicle that changes hands in America could be claimed as a loss against income. What qualifies as "capital property" is clearly defined and losses can be claimed against gains for a number of years. BUT, if you invest in capital property and lose it all, you can't right off the loss unless somewhere else you make a gain. This also makes sense or people would be pissing money away on ridiculous investments with no personal risk.

I agree that a person's entire income picture paints the whole tax for them.

Another aspect of this car hobby is the increase in the valuation of some rare ones. (plus add/subtract in the loss of value of money due to inflation).

Example--I bought a 69 Hemi Coronet RT 4sp in 1980 with 49K on the clock. I paid $900 for it. ---It is a #two condition car then and now.
Over the years I estimate my -documented- investment in the car to be about 3K. (I cannot prove that fact).
If I sold it today for 70K - let us say- I would be obligated to report 61k as income. The/my windfall of appreciation due to collectability will be combined with my year's income and taxed accordingly.

For some personal reason, I think my luck is mine. Taxing law is very complicated. A person's good fortune is to be shared with the whole by mandates.

 

[NJRR]

I agree that a person's entire income picture paints the whole tax for them.

Another aspect of this car hobby is the increase in the valuation of some rare ones. (plus add/subtract in the loss of value of money due to inflation).

Example--I bought a 69 Hemi Coronet RT 4sp in 1980 with 49K on the clock. I paid $900 for it. ---It is a #two condition car then and now.
Over the years I estimate my -documented- investment in the car to be about 3K. (I cannot prove that fact).
If I sold it today for 70K - let us say- I would be obligated to report 61k as income. The/my windfall of appreciation due to collectability will be combined with my year's income and taxed accordingly.

For some personal reason, I think my luck is mine. Taxing law is very complicated. A person's good fortune is to be shared with the whole by mandates.

No- the $61k is long term capital gain. Taxed very differently than income and doesn't affect your tax bracket.

 

[WileE]

Everyone has a personal responsibility to report ALL income to the IRS.--Gambling winnings, income from illegal drug sales, found bags of currency, etc.
Let your conscience be your guide.

Uh...uh... you mean, even from my lemonade stand ???

 

[WileE]

I've sold a bunch of cars (most all break even or at a loss) and maybe I've been lucky, but I've had no one question me about funds from large wire transfers and large bank checks.

Someone knockin' at the door... somebody ringing' the bell.

 

[ws23jrt]

No- the $61k is long term capital gain. Taxed very differently than income and doesn't affect you tax bracket.

I will look further into this due to your response. --My posting what I know -or think- comes from a fragile background in current and former tax law.
BTW thanks for a properly placed red x.

 

[ws23jrt]

Uh...uh... you mean, even from my lemonade stand ???

Yep. ---Undocumented--- money is always suspect and becomes a target for revenue.

 

[ws23jrt]

I've had no one question me about funds from large wire transfers and large bank checks.

Making large -cash- withdrawals and deposits are much more likely to raise flags.

I am reminded of when I went to my bank to learn about international bank transfers.
My questioning started with me getting answers to how the details about security were handled. --Such as unique codes that connect the links between accounts.
When we got to my intention (a large transfer) the person (bless her heart) stopped the conversation. She looked at me -with compassion and said sir- you may need to be aware of many scams going on about international transfers.

I said thank you much but in my situation, I would be receiving a transfer. Not sending one. She was able to sit back in her seat and we finished my education.

This was about selling a car to an overseas buyer. The buyer paid the full sale price. I received the full amount. The car was then shipped.

My connection with this buyer may never have happened on a "cash" sale basis.

 

[69L48Z27]

I've sold a bunch of cars (most all break even or at a loss) and maybe I've been lucky, but I've had no one question me about funds from large wire transfers and large bank checks.

Same here. Maybe some of theses guys need to buy a car wash.