Income Tax on Classic Car Sales

[Beekeeper]

Don’t take this as a political post because it’s not. Just trying to think ahead.

The current President changed the tax rules shortly after going in. Selling something like car parts and getting paid through certain avenues such as Venmo or PayPal triggers the possibility of receiving a 1099k for income from these financial institutions if it’s over $600 in a tax year. It’s easy to track and hard to dispute.

If a used car is sold, say a classic car for $40k, would this technically be something one would be expected to pay taxes on? Most high dollar transactions will be wire transfer or cashiers check and since the money goes into your bank, it’s certainly easy to track and report to the IRS.

My argument would be that the buyer pays sales tax on the purchase but the government is famous for hitting people at both ends so I kind of need to figure this out before selling a car. I could also see a situation where we would be forced to pay capital gains on any “profit” made which would be a real pain itemizing all the money you “invest“ in a car over the years.

Has anyone sold a car in 2021 and received a 1099k or been told by their bank that the money going in is being reported?

 

[KVB]

I feel you.... it seems the threshold is now 600$? For simple transactions, FB and others seem to be taking note......

Sell with cash. : )

 

[Beekeeper]

I agree cash is the key going forward but hard to do with tens of thousands or even larger sums.

 

[Avalanche]

I don't think the government can tax you for the sale of your car. You already paid the tax when you bought it. The buyer of the car is the one who pays the taxes.
Maybe we have a tax pro that's a member here that can chime in?

 

[Danny Boy]

Taxes on the profit from the sale? Oh, I'm sure the IRS definitely wants a chunk of that..

 

[Bret Schneider]

Don’t take this as a political post because it’s not. Just trying to think ahead.

The current President changed the tax rules shortly after going in. Selling something like car parts and getting paid through certain avenues such as Venmo or PayPal triggers the possibility of receiving a 1099k for income from these financial institutions if it’s over $600 in a tax year. It’s easy to track and hard to dispute.

If a used car is sold, say a classic car for $40k, would this technically be something one would be expected to pay taxes on? Most high dollar transactions will be wire transfer or cashiers check and since the money goes into your bank, it’s certainly easy to track and report to the IRS.

My argument would be that the buyer pays sales tax on the purchase but the government is famous for hitting people at both ends so I kind of need to figure this out before selling a car. I could also see a situation where we would be forced to pay capital gains on any “profit” made which would be a real pain itemizing all the money you “invest“ in a car over the years.

Has anyone sold a car in 2021 and received a 1099k or been told by their bank that the money going in is being reported?

I believe this statement is correct "Capital gains tax on collectible cars have a flat 28% tax rate" If that's the case you would be able to deduct the original cost and money spent on the car for maintenance, upgrades, etc... so if you're like most of us you might end up showing a loss... As always, my financial advice is worth exactly what you paid for it...

 

[Beekeeper]

Seems only right that if I’m expected to pay capital gains on profits made from a car, that I should be able to deduct loss as well if we are calling them investments. That is exactly how it works with other investments like stocks.

From the time I started driving, I was playing around with muscle cars and for a very long time, I was deep in the red on just about everything I sold. Now that I’m better at my hobby and don’t lose money, I get to pay taxes on it?

I guess I’m going to have to start keeping receipts for every little bolt or quart of oil to offset the gains I might someday have.

I wonder how the IRS would know. I know they have the ability to view wires but wires do not state why the transfer took place so they’d have to inquire on each one after the fact.

 

[Bret Schneider]

That's why the government will eventually go to all digital currency. Big brother will know every financial move you make. It's coming sooner rather than later...

 

[Beekeeper]

Depressing to think about as it relates to the hobby. a Lot of rare and valuable cars don’t change hands frequently as it is. If a seller had to factor in capital gains in a sale, might as well just keep it till you die unless you really need it gone.

Wonder how that would affect auction houses like Mecum. As it is now, a seller has to be willing to see a big chunk of the gross price cut away for the auction house and then another big chunk if they were fortunate enough to still have a gain.

My tax guy has a plaque on his desk that reads:

”A fine is a tax for doing bad. A tax is a fine for doing well.”

 

[rklein71]

If I could claim all the hours spent fixing up my car, I wouldn’t have any income to be taxed the year I sold my car.

 

[rklein71]

That's why the government will eventually go to all digital currency. Big brother will know every financial move you make. It's coming sooner rather than later...

Just like dip stick Biden said, there is a New World Order coming..,

 

[ted s]

collectable cars dont qualify for the 28 percent rate

 

[ted s]

the 600 rule goes back to the 1980s. just being enforced

 

[Beekeeper]

Whether the rules are old or new, I was trying to learn if anyone has recently gone through this and if they received something in the way of a 1099k from their bank as Venmo is about to start doing. Just trying to understand the process better from anyone with recent experience.

I know the IRS can see wire transfers but they have no way of knowing what it’s for unless someone tells them. And it would take an army of millions to look into every one of the billion plus wire transfers that happen in a given year in this country so logically, for them to want to enforce rules more, they would need a better process to make the task doable.

Just guessing, for the IRS to have a better handle on which transfers to look at harder, it would mean banks would have to inquire of the parties more information about what the transfer was for. And it the bank believed it might be taxable income, they would need to generate some type of 1099 for the recipient to claim in their taxes Just as Venmo is now required.

If people who have been through this recently have not heard anything or received anything, that suggests it is not yet being enforced.

 

[ted s]

im a cpa. if get the 1099 and dont report it you will receive a notice

 

[Challenger RTA]

Capital gains tax. there is also a profit and loss statement and deprecation that go along with that and others.Deprecation if applicable? hours spent fixing up car. pictures of old condition. You keep a record of your hours right. Yeah you did! Be able to deduct the original cost and money spent on the car for maintenance, upgrades.You know what cash you spent or you would't have the parts. In PA the state has been putting a value on car sales for a good while. Upon the transaction of the sale. the condition of the car is ask. Need tire all glass broken,bad motor, transmission etc. but there is a minimum value that is put on it. But I would look at it as buying a rolling shell. then a cash transaction for the other parts. CASH is always KING. It's better then 2 birds in a bush.The others are traceable transactions. The FEDS just want,s a piece of it too! So will the be a Federal sales tax? I Heard of this but i didn't up on it.

 

[ted s]

your time spent is irelevent . purchase price plus that paid for the restoration are the only items to offset the sales price

 

[Challenger RTA]

This all depend on how it written up.Capital gains tax. there is also a profit and loss statement and deprecation that go along with that and others.Deprecation if applicable? It depends on what loop holes are the or not. Condition is everything. Hear what I'm not saying.

 

[ted s]

a personal use car isnt depreciated

 

[Challenger RTA]

As someone like a CPA or other Doctor,Lawyer,Indian Chief. licensed professional they have to work with in the constraints of the law or they will lose there license or other. At a transaction of property it is good practice to pay back other debt the way you received it. I myself have loaned people or long lost friends money and forgot about it or they would pay me when they can. Like when selling a car or a house or furniture or other,they returned the cash they borrowed. I do believe in supporting our government but we are not a piggy bank to be raided. The government has to learn whether it's local state or federal to work with in the constraints of the people.Just my opinion.