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Sale of a vehicle- tax implications?
Posted on 9/5/14 at 10:48 am
Posted on 9/5/14 at 10:48 am
I just sold my truck for $3800 in cash. I know that selling a vehicle doesn't count as income if it's less than you bought it for. But this truck was bought by my dad and then he transferred the title to me, and when we switched over the title we probably gave a generic selling price of like $1 or $100, etc. So will I have to pay taxes? If so, any way to avoid them since it was a cash sale?
2
Posted on 9/5/14 at 11:04 am to Tigerfan56
Did your dad "sell" you the truck, or did he "donate" i.e. gift it to you? What does the paperwork say, if there is any?
Posted on 9/5/14 at 11:09 am to LSUFanHouston
I think he technically "sold" me the truck, because the title said I bought it for like $100.
Posted on 9/5/14 at 11:21 am to Tigerfan56
No. I did the same thing as you...ironically for the exact same amount. The act of donation still implies that the vehicle is worth book value despite the gift. So assuming book value hasn't increased, you're good.
Posted on 9/5/14 at 12:18 pm to Tigerfan56
Looks like you and golfer screwed yourselves here.
When your dad "sold" you the vehicle, you took a basis in the truck equal to what you "paid" for it - so you claimed you "paid" $100 for it. (technically, you paid $100 for the truck and your dad didn't collect it). Your basis for determining a gain is $100.
If he would have gifted the truck to you, your basis for selling it, for purposes of determining a gain, would have been the adjusted basis of the truck in your dad's hands, as that carries over to you via the gift (which would be what he paid for it, less any tax deperication he took on it, such as if he took it for work).
So based upon what you told me, you have a taxable gain of $3,700. If he would have gifted the truck to you, and he never took any depreciation, you would have a loss assuming he originally bought the truck for more than $3,700.
Unfortunetly, personal gains are taxable, and personal losses are not deductible. Gotta love the IRS.
Odds of you getting "caught" if you don't claim the gain as income? Probably pretty small. There are no 1099s or anything with the sale of a car. If you *were* to get audited for something else, and the IRS saw a $3,800 random deposit in your bank account, they might ask questions. But if they are that deep into an audit on you, then you gots other problems.
When your dad "sold" you the vehicle, you took a basis in the truck equal to what you "paid" for it - so you claimed you "paid" $100 for it. (technically, you paid $100 for the truck and your dad didn't collect it). Your basis for determining a gain is $100.
If he would have gifted the truck to you, your basis for selling it, for purposes of determining a gain, would have been the adjusted basis of the truck in your dad's hands, as that carries over to you via the gift (which would be what he paid for it, less any tax deperication he took on it, such as if he took it for work).
So based upon what you told me, you have a taxable gain of $3,700. If he would have gifted the truck to you, and he never took any depreciation, you would have a loss assuming he originally bought the truck for more than $3,700.
Unfortunetly, personal gains are taxable, and personal losses are not deductible. Gotta love the IRS.
Odds of you getting "caught" if you don't claim the gain as income? Probably pretty small. There are no 1099s or anything with the sale of a car. If you *were* to get audited for something else, and the IRS saw a $3,800 random deposit in your bank account, they might ask questions. But if they are that deep into an audit on you, then you gots other problems.
Posted on 9/5/14 at 1:09 pm to LSUFanHouston
quote:
Looks like you and golfer screwed yourselves here.
I did an Act of Donation. I assumed he meant he did the same thing because there are still fees associated with the Act of Donation that amount to about $100.
This post was edited on 9/5/14 at 1:10 pm
Posted on 9/5/14 at 1:36 pm to Golfer
quote:
I did an Act of Donation
Ahh, gotcha. I stand corrected in respect to you, Golfer. Yes with an Act of Donation you still owe fees to the DMV, but you don't owe sales tax. If you did a sale for $100, then you would owe sales tax on $100, i.e. just a few bucks.
Posted on 9/6/14 at 3:45 am to LSUFanHouston
I think that they can use the disallowed loss from a related party sale to offset the gain.
The dad likely had in excess of $10,000 basis in the truck that he sold for $100 to his son. The $9,900 loss on sale to related party is disallowed to the dad, but it gets deferred to a subsequent sale by the son. Thus, the son would have a gain of $3,700 reduced by the previously disallowed loss of $9,900, or a net loss of $6,200. However, the loss would be nondeductible since the truck was a personal asset.
Bottom line, no tax liability.
The dad likely had in excess of $10,000 basis in the truck that he sold for $100 to his son. The $9,900 loss on sale to related party is disallowed to the dad, but it gets deferred to a subsequent sale by the son. Thus, the son would have a gain of $3,700 reduced by the previously disallowed loss of $9,900, or a net loss of $6,200. However, the loss would be nondeductible since the truck was a personal asset.
Bottom line, no tax liability.
Posted on 9/8/14 at 9:58 am to Poodlebrain
Poodle - agree about your intrepretation of related party rules, but wouldn't the fact that it was a loss of a personal asset make the related party rules moot?
When the dad sold the truck to the son, if personal loss disallowance rules apply, the related party rules would never kick in.
I mean, I can't sell my personal-use car to a non-related party and deduct a loss.
This is where I am confused. =) If the dad had the truck as a business asset, sold it to the son, then yes, a related party suspended loss would be there, and available to the son when he sold it to the non-related party down the line. But since the truck sold by dad was a personal use asset, I don't think there is any otherwise deductible loss available to suspend under related party rules.
When the dad sold the truck to the son, if personal loss disallowance rules apply, the related party rules would never kick in.
I mean, I can't sell my personal-use car to a non-related party and deduct a loss.
This is where I am confused. =) If the dad had the truck as a business asset, sold it to the son, then yes, a related party suspended loss would be there, and available to the son when he sold it to the non-related party down the line. But since the truck sold by dad was a personal use asset, I don't think there is any otherwise deductible loss available to suspend under related party rules.
Posted on 9/8/14 at 5:03 pm to LSUFanHouston
I haven't bothered to look for ordering rules, but I would think that the results should be the same for an asset sold to a related party as for an asset gifted to a related party. It is absurd that the subsequent sale of an asset acquired in a transfer from a related party for $100 of consideration would result in a tax liability when the sale of that same asset acquired in an identical transfer with zero consideration would result in no tax liability for the transferee.
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