Tax question for those who've sold..

[young51]

Not looking to have anyone incriminate themselves but I have a tax question for those who may have sold recently. Not that I'm going to but it someone sold their car to a dealer or one of the Zoom/Carvana type sites do they have to pay taxes on the sale or report it as earnings? For example if I owed $25k on my car and I sell it for $50k, do I need to report that? I've never "made" any money selling a modern car and I'm wondering how that would play out. Would the buyer reporting the purchase force your hand in this case?

[olblue75]

No because the money you laid out was already taxed when you earned it.

[JRowe500]

Technically you do have to pay income taxes on a car sale if you have a gain. As far as I know, a buyer does not have to send out a 1099s or 1099NEC. Obviously most car sales result in a loss so I do not think that the IRS has any mechanism to collect information on car sales. If you got audited for something else then they could question the deposit of the money in the bank but that is highly unlikely to happen.

[JRowe500]

Originally Posted by olblue75

No because the money you laid out was already taxed when you earned it.

Sorry but that's wrong. If you paid $42,000 for Z28 and sold it for 52,000 you would have a gain of $10,000. That would be taxable.

[BehindBlueI's]

Originally Posted by young51

Not looking to have anyone incriminate themselves but I have a tax question for those who may have sold recently. Not that I'm going to but it someone sold their car to a dealer or one of the Zoom/Carvana type sites do they have to pay taxes on the sale or report it as earnings? For example if I owed $25k on my car and I sell it for $50k, do I need to report that? I've never "made" any money selling a modern car and I'm wondering how that would play out. Would the buyer reporting the purchase force your hand in this case?

What you owe on it is irrelevant, tax wise. If you made a profit selling it then the amount of profit is a capital gain. If you sell it for less than you originally paid for it, then its a capital loss. Capital gains/losses are reportable on your taxes.

To figure if you made a profit, you can NOT include the cost of insuring it and repairs (this may be deductible elsewhere for businesses, pretty much never for individuals). You use the original purchase price plus the cost of improvements. Improvements are long term upgrades, like a new stereo or paint. You can add the actual price you paid, no depreciation.

[JRowe500]

Behindbluel is pretty much correct. But is wrong on one point. You can not take a loss on the sale of personal property. Business property yes. Otherwise we would all be deducting losses on our car sales.

[macalot]

One would think a sale like that would be reported as a short/long term capital gain. Not earned income unless you do it for a living I believe...Although sometimes short term capital gains taxes are treated with the same earned income tax rate. I would think the state collecting sales tax multiple times on the same vehicle throughout it's life would amount to enough taxes paid in my mind. Of course the gov't doesn't think so. Add into the equation inflation.... I don't think I would report a capital gain. I'm not recommending anything and am not a tax preparer, just a long time tax payer.

[macalot]

Originally Posted by DAP_Driver

IRS has entered the chat….

They wouldn't answer it anyhow.
I dare you to email 5 different IRS agents this question. Most likely you will get 5 different answers, as evidenced by doing same with tax returns (which has been done).
Just saying

[mlee]

I'm pretty sure there are limits on capitol gains and you would have to make a lot of money on your sale before it would be taxable. 1099's would be issued at that point.

You have to make something like $250k on a home sale before the capitol gains are taxable and that's if you file single. Married filing joint it doubles. Now sell a piece of land that you've owned for a couple years and a 1099 will be issued by the title company.

Bottom line is I've never heard of anyone paying taxes on gains from a car sale. The person buying it will have to pay taxes to register it.

[DAP_Driver]

Originally Posted by macalot

They wouldn't answer it anyhow.
I dare you to email 5 different IRS agents this question. Most likely you will get 5 different answers, as evidenced by doing same with tax returns (which has been done).
Just saying

Thanks for clearing that up

[young51]

Thanks for the responses. I've seen plenty of vintage cars change hands for cash and the sale price recorded is often up to discretion. I wonder if someone who sells to a CarMax/Carvana type place or dealer is forced to report it by nature of how it was sold.

[BehindBlueI's]

Originally Posted by JRowe500

Behindbluel is pretty much correct. But is wrong on one point. You can not take a loss on the sale of personal property. Business property yes. Otherwise we would all be deducting losses on our car sales.

Respectfully, I did not say it was deductible. I said it was a capital loss and capital loss/gains are reportable. That does not equate to deductible.

Capital losses on personal asset, in some circumstances, can be reported and used to offset capital gains. They would not apply in this instance, but could if the OP was selling collectibles, for example, even if not done as a business. Sort of like gambling losses. They aren't deductible but can offset gambling income for tax purposes.

Or so I recall from accounting classes a bit over 20 years ago. I'm not current, so apologies if things have changed.

[mlee]

Originally Posted by young51

Thanks for the responses. I've seen plenty of vintage cars change hands for cash and the sale price recorded is often up to discretion. I wonder if someone who sells to a CarMax/Carvana type place or dealer is forced to report it by nature of how it was sold.

Dealers do not have to pay taxes because they are re-selling. Taxes come to play when the car gets registered by the buyer.

The price can be left to discretion of the two people making the transaction but most states have some sort of system for minimum taxes now days.

[JRowe500]

Originally Posted by mlee

Dealers do not have to pay taxes because they are re-selling. Taxes come to play when the car gets registered by the buyer.

The price can be left to discretion of the two people making the transaction but most states have some sort of system for minimum taxes now days.

You are talking about sales taxes, not income taxes.