Avoiding capital gains on vehicle sale

Ain't that the truth !

 

This is an interesting point for car guys - sell one car that has appreciated and fully spend all monies on 2-3 new car acquisitions - a complete wash!

AGREED VALUE INSURANCE is a must

I see you are in California. Sales tax is specific to each State and CA does not allow any tax credit on a trade in.

 

Interesting, although Germany as well (at present) does not charge any taxes on private car sale profits. Some offices are trying to "adjust" the private issue by declaring the seller a dealer, so that the profit will have to be included in the taxable income. But this is at present more than arguable.

But tax issues generally are "symmetrical". If you are charged for an income oder some other kind of profit, then you also must have the right to have losses regarded reducing taxes.

Now my question to the US fellows. If you have bought a 365 GT4 and a 599 in 2009 at the prices of USD 150,000 and 320,000 (599 as a new car). Further, if you sold both last year, you might have gained 200,000 with the 365 GT4, but lost with the 599 about the same amount. Would then the tax be zero, because the total of gains and losses is zero? Anything else would be illogical ....

 

I realize the first link was geared towards estate planning, but the CRA seems to be pretty clear on this. Not looking to be argumentative, but what am I missing here? I'm interested because I may buy a vacation property and a vehicle up in the Barrie area in the next few years:

Personal-use property

 

You're not missing anything.

I (among half the Canadians) would be in jail for tax evasion if this was enforced. I'm going to get an interpretation from my accountant and post his response here.

Barrie is prime, if you can get property there then go for it, you will be doing quite well.

 

1031 exchange is out as the car is not a business or investment asset. It's a personal asset like your house unless you are a dealer which requires a license. Best thing to do is trade it. Many states will give you a sales tax break on that. Technically you owe tax gain on FMV at trade but irs will unlikely pick it up even on audit as they expect cars to depreciate so they are not looking for it.

 

Yes but if you trade a $150k car for a $75k one, you're receiving a $75k balance check from the dealer. Is that reported to the irs? Or is your bank obliged to report your large windfall upon deposit? Further, which I've yet to see an answer here, if you purchase another car with the sale proceeds of the first, is only the delta taxable? Or is the full profit from sale taxable regardless of what you buy next? Obviously if you are purchasing another car and receive only a portion back as cash, that's the part that "appears" to be new $$ when deposited. If you purchase the next car at equal value to your sold car, then no cash is rebated back to you, so I would surmise in this situation it would be invisible to Uncle Sam, no?

In the event that I sell my car, my preference is to take some cash out and not fully-fund an equally-expensive next car (ie; 328 to a 430). That cash-out amount is the source of my questions as regards taxation.

Greg


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Large deposits made by check or wire are not reported to IRS.
You will have to explain them during a Full Audit if you are unlucky to get one.
Cash deposits, in reality anything over $5k, are putting you at risk, since banks are not obligated by law to report anything less then $10k, they are under pressure to look for (and report) "structured deposits" designed to go around that law.

 

Simple, if you net a huge profit just don't deposit it anywhere...

They make safes and deposit boxes for a reason ...

Not that I would ever do that...

 

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Couple of tax answers:

If you trade in the car on another, the trade value less your basis in the car is still subject to capital gains, but these transactions are not the sort that are reportable to the IRS.

If you sell one car for a gain and another for a loss, the loss cannot offset the gain because they are personal property. The only losses that offset gains are on paper investments, such as stock. If you are a dealer (with appropriate license) then gain and loss are business income and loss and can offset. The only personal property with a rollover component or max amount before taxation is your home.

 

What you buy with the proceeds of the sale of car 1 is irrelevant. If your basis is below $150k you made a gain, it is taxable. The dealer has no reporting obligation. You have to report the gain on your return and pay the tax. I would recommend paying long term capital gains tax (20% + 3.8% obamacare + state cgt). Obviosuly breaking the law is easy, just don't report it. But none of us should be under the illusion that the tax isn't owed.

You can defer the tax by doing a 1031 exchange and buying another car. If car 2 cost more, all of the tax is deferred, if you take cash out, it is all taxable down to the basis on car 1.

 

THX for this straighfporward explanation.

 

What about the car for a house in a 1031 exchange. I believe you can do that. Years ago when I worked at a title insurance company I was sure you could change items within a 1031 exchange.

 

Nice.Do you get to right the car down even if you don't use it for business?

 

Noop! That 'looseness' in 1031s was closed many 'years ago'.

 

Correct - that is no go. Car for car.

 

Keep the car and when you die the basis is stepped up to the value at time of death. Your estate can then sell the car at the time of death value with no tax consequences.

 

1031 exchange - Ferrari for a collector RV > retirement/vacation home.