Paying income taxes on classic car sales (U.S)

[dang]

I've read up on different scenarios for income tax on vehicles sales, more specifically classic/enthusiast car sales, but I haven't been able to find much on vehicles sold after the seller did the restoration. Like a lot of us here, we put in hours and hours of labor to restore a car but it looks like you can only account for money spent not time spent. Other than being a business, is there any way to get any tax breaks from your own time spent on increasing the value of a vehicle? It feels like we're doing a bunch of hard work so the government can make money.

Dan

 

[craterface]

I t would be capital gains tax, no? I assume you held the car for more than two years.

I would document what you did and the time you spent and bill it out at 125 per hour. I assume you have pix.

I would add that to your cost basis. Let them challenge you on that.

Scott

 

[dang]

I t would be capital gains tax, no? I assume you held the car for more than two years.

I would document what you did and the time you spent and bill it out at 125 per hour. I assume you have pix.

I would add that to your cost basis. Let them challenge you on that.

Scott

Thanks Scott. Yes, typical restoration time line, years in the making, but didn't think you could bill out per hour without being a business. Interesting. I think my time would be more like $1.57/hr.

 

[Dick Steinkamp]

Other than being a business, is there any way to get any tax breaks from your own time spent on increasing the value of a vehicle? It feels like we're doing a bunch of hard work so the government can make money.

Keep the car for over 12 months to qualify for the lower tax rate of a long term capital gain.

Use any loss from other cars to offset current or future profits.

I've not been able to find any others. I've bought and sold over 50 collector cars (the project is the hobby for me). On most of them I've added value with my labor. I pay federal income tax on the difference between the cost of the car plus parts and outside labor and the selling price (no income tax in Washington State). I require receipts for purchases and log them in case I'm audited and so that I always know how much I have "invested" vs my budget for that car. My accountant tells me I can not deduct a value for my labor from the selling price, nor the cost of my rented off site shop where I do my work, nor tools.

I agree that the government is very good on collecting taxes from hard work...not so good at the other end of the spectrum

 

[teahead]

https://www.irs.gov/pub/irs-pdf/f8949.pdf

 

[dang]

Are all vehicles treated equally? Meaning, I have several daily drivers and lose value and are eventually sold at a loss. I have non-daily drivers that are sold for a profit. Are they treated the same as far as taxes go? It seem that if I get taxed on profit I should be able to claim a loss on others, regardless of how they're used.

 

[rsporsche]

seems like it would be worth creating your own small business. have the company buy / sell all cars. track all purchases + parts purchases and pay for all labor. keep books on all projects. then its your basic profit / loss calcs and taxes paid accordingly. then daily drivers become company cars where insurance, operating costs and losses are a company expense. I am not a tax expert so i don't know the validity in all of these ideas ... just seems like a reasonable approach.

 

[Dan Wood]

You mean that you can sell cars and not just buy them? I need to look into that.

 

[dang]

You mean that you can sell cars and not just buy them? I need to look into that.

LOL. Yeah, I'm asking all of this for a friend.

 

[HB Chris]

Capital losses can only offset Gains I think. And your labor doesn’t count but an audit would be very rare.

 

[Arde]

I thought that capital gain taxes were not enforced on car sales. They tax you with the sales tax.
For a classic car it would be very aggravating to be the first owner and pay taxes from the close to 100k$ value of today vs. 12k$ value new, as much of that is that the cost is not inflation adjusted... Yes and as I opined before, that picture has gotten worse with no near term fix I think. Personally I see myself using 100 dollar bills like I was using 20 dollar bills a few years ago. I used to pull out ATM money in 20s. Not anymore.
If on top of that you have to depreciate the cost basis it would be ridiculous.
The idea of selling the same year a daily driver makes sense to offset gains... but then again if that is possible one could use DD capital losses to offset stock gains, as the gains do not have to be in like assets I think.
Two other pieces of good news: There is a debt ceiling deal, and it reduces by 10B$ the budget allocated to IRS enforcers, so there will be less auditors going over E9 sales. I'll drink to that.
Now, the ultimate strategy is to use the step up of the cost basis that happens at inheritance time. Yes, minor problem, it involves dying...

 

[CSteve]

My accountant said, "Take the deduction, let them challenge you."

 

[Aussiecsi]

Keep the car for over 12 months to qualify for the lower tax rate of a long term capital gain.

Use any loss from other cars to offset current or future profits.

I've not been able to find any others. I've bought and sold over 50 collector cars (the project is the hobby for me). On most of them I've added value with my labor. I pay federal income tax on the difference between the cost of the car plus parts and outside labor and the selling price (no income tax in Washington State). I require receipts for purchases and log them in case I'm audited and so that I always know how much I have "invested" vs my budget for that car. My accountant tells me I can not deduct a value for my labor from the selling price, nor the cost of my rented off site shop where I do my work, nor tools.

I agree that the government is very good on collecting taxes from hard work...not so good at the other end of the spectrum

I'm no accountant ,but I would think that adding your personal labour charge to the project Cost Base simply creates a tax liability elsewhere ;that is it would be deemed "income earned" on which tax would be payable .Obviously this is not the case where a third-party contractor is used.for labour..I guess it all comes down to personal tax rate versus CGT discount rate(s) that apply in the US. FWIW, any gain in OZ is tax free ( but I'm sure the guvmint will get around to that) .If you don't waant to pay tax, buy a boat !

 

[teahead]

Topic no. 409, Capital gains and losses | Internal Revenue Service

IRS Tax Topic on capital gains tax rates, and additional information on capital gains and losses.

www.irs.gov

Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.

 

[teahead]

Are cars subject to capital gains taxes?​

Many consumers think of cars as a functional purchase rather than a long-term investment. However, the IRS does consider profit from car sales to be a capital gain.

https://www.realized1031.com/blog/are-cars-exempt-from-capital-gains-tax

 

[dang]

Topic no. 409, Capital gains and losses | Internal Revenue Service

IRS Tax Topic on capital gains tax rates, and additional information on capital gains and losses.

www.irs.gov

Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.

Typical government. Only interested in things they can tax you on. Lose money on the sale of a house? Eh. Make money on the sale of a house? Oooo, you need to give us some of that!

 

[wkohler]

There was a pretty good article about this a few years ago in Sports Car Market. There are others as it’s a popular topic but this one is pretty interesting. Of course, different market, some rule changes since, but it incorporates the 1031 exchange when it comes to cars and I think a lot of people move in and out of cars so it’s germane to this discussion.

Trading Cars to Avoid Taxes - Sports Car Market

Legal Files” gets a lot of questions, but the most frequent is: “How can I do a 1031 exchange with my collector car?” This is not much of a surprise. Many

www.sportscarmarket.com

 

[craterface]

There was a pretty good article about this a few years ago in Sports Car Market. There are others as it’s a popular topic but this one is pretty interesting. Of course, different market, some rule changes since, but it incorporates the 1031 exchange when it comes to cars and I think a lot of people move in and out of cars so it’s germane to this discussion.

Trading Cars to Avoid Taxes - Sports Car Market

Legal Files” gets a lot of questions, but the most frequent is: “How can I do a 1031 exchange with my collector car?” This is not much of a surprise. Many

www.sportscarmarket.com

1031 tax free exchange for collectibles went away a few years ago.

Lucky for me I always make bad car buying/selling decisions so I never make anything on cars Don’t tell my wife.

 

[wkohler]

Figures. That wasn’t the article i was trying to find but it popped up.

 

[Arde]

1031 tax free exchange for collectibles went away a few years ago.

Lucky for me I always make bad car buying/selling decisions so I never make anything on cars Don’t tell my wife.

A 1031 exchange would be a great tool. Else you sell a car and cannot get into a car like the one you just sold.
I think it has to be for investment, not personal though.