Selling collector cars and capital gains questions.

[chaaargerb]

Hello everyone. I was hoping I could pick you brains on selling collector / antique autos and paying capital gains. First off I'm NOT selling my bird but I will use it as an example. I purchased the car 30 years ago as a project car so I have a minimal amount of money out on the original purchase say under 10,000 dollars. Over the course of 30 years I have spent 10s of thousands of dollars to restore and to store this car. I do have receipts for parts and some storage but nowhere near what I actually have spent. The real downside is the thousands of hours I have put into the restoration and the parts I have traded to get parts I needed. The cars appraised value today is 135,000.

I'm asking about this because my wife and I have been doing so retirement planning and at some point the bird will be sold. The retirement planner said that when I sell I would have to pay capital gains on my collector cars. I live in Wisconsin and was told I would have to pay about 28% tax on the capital gains.  WTF 

So I guess what I'm asking is has anyone been in the same situation as I'm in and was there anyway to protect your assets. Thanks in advance.



   

[cudavic]

Hello everyone. I was hoping I could pick you brains on selling collector / antique autos and paying capital gains. First off I'm NOT selling my bird but I will use it as an example. I purchased the car 30 years ago as a project car so I have a minimal amount of money out on the original purchase say under 10,000 dollars. Over the course of 30 years I have spent 10s of thousands of dollars to restore and to store this car. I do have receipts for parts and some storage but nowhere near what I actually have spent. The real downside is the thousands of hours I have put into the restoration and the parts I have traded to get parts I needed. The cars appraised value today is 135,000.

I'm asking about this because my wife and I have been doing so retirement planning and at some point the bird will be sold. The retirement planner said that when I sell I would have to pay capital gains on my collector cars. I live in Wisconsin and was told I would have to pay about 28% tax on the capital gains.  WTF 

So I guess what I'm asking is has anyone been in the same situation as I'm in and was there anyway to protect your assets. Thanks in advance.



   

It is my understanding that any monetary gain on a collector car held by the same owner for over one year is taxed as a long term capital gain tax rate of 20%.
If I were you I would collect every receipt I could for, paint jobs, parts, insurance premium, storage fee, misc BS,... ect... over the past 30 years of ownership that would offset and minimize any gains.
If you could come up with $90,000 dollars worth of receipts on top of the $10,000 you paid for the car, then you're looking at 20% of $35,000 or $7,000 dollars.
Yes it sucks. However if you think of the consequences of shorting the IRS, "It Sucks Less".

[WINGMAN]

  When I bought my Daytona in 2003 for 50K the owner wanted cash or bank checks no larger than $9500.00. If and when I sell mine I will try and do the same. (Wingman)   Jay.

[chaaargerb]

Okay I have another thought. What if you took a car and cash as trade for the car?  Say a 50,000 demon and 85,000. pay little to no capital gains. Register the demon at 5.5 percent then sell the demon a couple months later. I see a lot of people trade cars and cash all the time. Or what about the other way. Trade my car and cash for a more valuable car say my car and 25,000 for a daytona project. Again register the daytona at full price for 5.5%Then sell the Daytona. No capital gains?

[Aero426]

Short of shoe boxes full of cash, the answer is fairly grim.   The long term capital gain answer is correct.     I believe the 2020 tax rate is 15% for filers whose incomes are between $40,001 and $441,450.   I do not believe that collector cars are subject to the maximum "collectible" tax rate of 28%.       Talk to your accountant.  

"Improvements" can be added to your $10000 basis value example, but not "repairs".      Restoration is an improvement.  A complete paint job is an improvement.   On a running driving car, a brake or clutch job is a repair.     I just put a complete exhaust system on my car.   That is a repair.    Your personal hours invested don't count.   Horse trading of parts does not count.    Storage?  Probably not as we all have to store our cars, operable or not.   A book of documented receipts is helpful.

If you sell your car at auction,  your selling costs can reduce the amount of tax due:  appraisal fees,  transportation of your car,  meals and lodging,  detailing,  minor fixes that the buyer would ding you for,  

There used to be a thing in the tax code called a 1031 Exchange where if you traded your car even for another, or sold your car and identified and purchased a replacement within a certain amount of time, it kicked the tax can down the road. There were specific and strict rules on this.   Eventually, tax would be paid when you sold the new car without an exchange.     However, this loophole on personal property was done away with as part of the GOP led 2017 Tax Cut and Jobs Act.    

[Aero426]

I see a lot of people trade cars and cash all the time.

They just are not disclosing it.

[ACUDANUT]

I have never heard of capital gains, when it comes to a classic/antique cars.  Sounds like a BS thing to me. I bet it varies state to state on a car being sold. 

[chaaargerb]

If you sell a collector or classic car that you owned for at least a year, then the profit you make is a long-term capital gain. That means it's taxed at lower rate than if you only owned the car for less than a year. The difference is significant; 20 percent compared to 39.6 percent.

https://groco.com/article/the-tax-side-of-dealing-in-collector-cars/
I don't know if I linked it right

[nascarxx29]

If you sell a collector or classic car that you owned for at least a year, then the profit you make is a long-term capital gain. That means it's taxed at lower rate than if you only owned the car for less than a year. The difference is significant; 20 percent compared to 39.6 percent.

https://groco.com/article/the-tax-side-of-dealing-in-collector-cars

Know of  wire transfer to a account for six figures for sale of wingcar..No problems or issues.You deposit that at your bank and questions are raised.Wire transfer
I don't know if I linked it right

[XS29LA47V21]

 


At end of question here ask you accountant and dance with IRS as you desire.  Careful with advise here and evaluate your risk...   Everything is tracked, everything...etc...

IRS does not care if you loose money nearly anywhere but as soon as you make money (gains) they do, hobby cars included.  Referred to as the "Hobby loss rule" or something to the effect.  Keep all receipts, etc but I would suspect players owning wing cars bought at 45k 20yrs ago selling for 200k now might pay attention to gains and IRS that will hunt them later.  I have not sold a car for these same reason.  For some may change there tax bracket too.  Perhaps there are ways to trade around by some, but at some point gains are gains as I understand.

[XS29LA47V21]

Short of shoe boxes full of cash, the answer is fairly grim.   The long term capital gain answer is correct.     I believe the 2020 tax rate is 15% for filers whose incomes are between $40,001 and $441,450.   I do not believe that collector cars are subject to the maximum "collectible" tax rate of 28%.       Talk to your accountant.  

"Improvements" can be added to your $10000 basis value example, but not "repairs".      Restoration is an improvement.  A complete paint job is an improvement.   On a running driving car, a brake or clutch job is a repair.     I just put a complete exhaust system on my car.   That is a repair.    Your personal hours invested don't count.   Horse trading of parts does not count.    Storage?  Probably not as we all have to store our cars, operable or not.   A book of documented receipts is helpful.

If you sell your car at auction,  your selling costs can reduce the amount of tax due:  appraisal fees,  transportation of your car,  meals and lodging,  detailing,  minor fixes that the buyer would ding you for,  

There used to be a thing in the tax code called a 1031 Exchange where if you traded your car even for another, or sold your car and identified and purchased a replacement within a certain amount of time, it kicked the tax can down the road. There were specific and strict rules on this.   Eventually, tax would be paid when you sold the new car without an exchange.     However, this loophole on personal property was done away with as part of the GOP led 2017 Tax Cut and Jobs Act.    

 
1031 still exists for real-estate.  Not that easy, been involved in that as a younger man.  Is that really a thing on cars/equipment? 

[taxspeaker]

OK guys. As you can see by my screen name I am a CPA and my company is the leading national tax training company (Taxspeaker) for tax professionals, so here you go.

The sale of a collector car requires a beginning decision of "did  you buy it new or so long ago that you could argue that it was daily transportation", and can you prove it if IRS asks? If so, the strong argument could be made that it was a personal asset and any profit would be taxed at capital gains rates. These rates are almost always 15%, but in those rare cases where income is > $600,000 they are 20%. There is also a potential for a 3.8% surtax on top of that if your income is over $250,000. Yes you need an accountant.

Having been through a number of IRS audits as the taxpayer's representative, at least 50% of the time the IRS will argue the collector car is a "collectible". These are taxed at ordinary tax rates like your W-2, but often hit the max collector rate of 28% if you make over 6 figures. Again, that pesky 3.8% surtax could kick in too. Yes you need an accountant.

A trade in of a car is considered part of the sale price, you if you receive $50,000 cash and a $50,000 69 Charger R/T you are treated as having sold the car for $100,000. yes you need an accountant. If the accountant knows about the trade and/or cash he or she must report it or commits fraud.

Your cost was well summarized in Troy's Aero426 post above.

[Mopurr]

Yes, it sucks,  divorce put me in this issue a few years ago and the  federal and state benefited.   I went through years of boxes to find every receipt I could.   The biggest sad thing is if you do a restoration yourselves your labor means nothing in value to them.   If you had your car done by someone those $$$$ are something you can offset with

[Aero426]

Short of shoe boxes full of cash, the answer is fairly grim.   The long term capital gain answer is correct.     I believe the 2020 tax rate is 15% for filers whose incomes are between $40,001 and $441,450.   I do not believe that collector cars are subject to the maximum "collectible" tax rate of 28%.       Talk to your accountant.  

"Improvements" can be added to your $10000 basis value example, but not "repairs".      Restoration is an improvement.  A complete paint job is an improvement.   On a running driving car, a brake or clutch job is a repair.     I just put a complete exhaust system on my car.   That is a repair.    Your personal hours invested don't count.   Horse trading of parts does not count.    Storage?  Probably not as we all have to store our cars, operable or not.   A book of documented receipts is helpful.

If you sell your car at auction,  your selling costs can reduce the amount of tax due:  appraisal fees,  transportation of your car,  meals and lodging,  detailing,  minor fixes that the buyer would ding you for,  

There used to be a thing in the tax code called a 1031 Exchange where if you traded your car even for another, or sold your car and identified and purchased a replacement within a certain amount of time, it kicked the tax can down the road. There were specific and strict rules on this.   Eventually, tax would be paid when you sold the new car without an exchange.     However, this loophole on personal property was done away with as part of the GOP led 2017 Tax Cut and Jobs Act.    

 
1031 still exists for real-estate.  Not that easy, been involved in that as a younger man.  Is that really a thing on cars/equipment? 

Correct.  Still good for real estate.  Was also applicable to personal property.  But the law changed in 2017.  Loophole closed.

[ACUDANUT]

  Tax speaker.  Please give us the Federal Tax Codes for selling a 50 y/o car and having to pay capital gains on it.  I claim BS.
BTW, there are many CPA's here.  
Do people selling at Barrett Jackson/Mecun auction pay this ??

[cudavic]

 Tax speaker.  Please give us the Federal Tax Codes for selling a 50 y/o car and having to pay capital gains on it.  I claim BS.
BTW, there are many CPA's here.  
Do people selling at Barrett Jackson/Mecun auction pay this ??

Topic No. 409 Capital Gains and Losses

https://www.irs.gov/taxtopics/tc409

Capital Gain Tax Rates
The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $78,750.

A capital gain rate of 15% applies if your taxable income is $78,750 or more but less than $434,550 for single; $488,850 for married filing jointly or qualifying widow(er); $461,700 for head of household, or $244,425 for married filing separately.

However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

There are a few other exceptions where capital gains may be taxed at rates greater than 20%:

The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.
The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.
Note: Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.

Limit on the Deduction and Carryover of Losses
If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 21 of Schedule D (Form 1040 or 1040-SR) (PDF). Claim the loss on line 6 of your Form 1040 (PDF) or Form 1040-SR (PDF). If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550, Investment Income and Expenses (PDF) or in the Instructions for Schedule D (Form 1040 or 1040-SR) (PDF) to figure the amount you can carry forward.

Where to Report
Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, Sales and Other Dispositions of Capital Assets (PDF), then summarize capital gains and deductible capital losses on Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses (PDF).

Estimated Tax Payments
If you have a taxable capital gain, you may be required to make estimated tax payments. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax, Estimated Taxes and Am I Required to Make Estimated Tax Payments?

Net Investment Income Tax
Individuals with significant investment income may be subject to the Net Investment Income Tax (NIIT). For additional information on the NIIT. For additional information on the NIIT, see Topic No. 559.

Additional Information
Additional information on capital gains and losses is available in Publication 550 (PDF) and Publication 544, Sales and Other Dispositions of Assets. If you sell your main home, refer to Topic No. 701, Topic No. 703 and Publication 523, Selling Your Home.

RULE #1 - Don't mess with the IRS! They have unlimited resources to audit, investigate and imprison you.

[Redbird]

"Yes, it sucks,  divorce put me in this issue a few years ago and the  federal and state benefited.   I went through years of boxes to find every receipt I could.   The biggest sad thing is if you do a restoration yourselves your labor means nothing in value to them.   If you had your car done by someone those $$$$ are something you can offset with"

This argument never makes any sense.

When you pay someone to do your labor you have an outlay of cash to them. It is like buying a car for more money upfront. Moreover they are responsible for paying tax and Social Security on their net income.

If you do the labor yourself you had no Federal tax, State tax or SS with held on your time. The value you gain is taxed at the capital gains rate. It is not a "sad" thing. You are actually getting a very good tax benefit by being able to pay the gain at the capital gains rate.

[RallyeMike]

An interesting topic.

As to whether the IRS has the unlimited resources to track the capital gain of every collector vehicle in America that changes hands, I doubt it. At most, only vehicles that sell for substantial amounts will end up on a radar, ...like a Bird.

[cudavic]

An interesting topic.

As to whether the IRS has the unlimited resources to track the capital gain of every collector vehicle in America that changes hands, I doubt it. At most, only vehicles that sell for substantial amounts will end up on a radar, ...like a Bird.

I agree.

However, where do you decide whether or not you are on the radar screen? Even on lower priced sales.

Sale price of $25,000 with $5,000 profit? no probably not
Sale price of $25,000 with $20,000 profit? Starting to look a bit more possible

Sale price of $45,000 with $5,000 profit? no probably not
Sale price of $45,000 with $25,000 profit? Starting to look a bit more possible

High dollar cars, $100,000 and up. Very probable.

Banks must report any deposit of $10,000 dollars or more or two deposits totaling $10,000 or more from the same individual to the IRS.

If you sell a high dollar car ($130,000+ dollar Superbird) there will be a money trail unless the buyer shows up with a shoe box full of "C" notes to the tune of $130,000.00+ dollars.

Me myself, if I were to sell a car and make $5,000 I would pay the 20% or $1,000 to the IRS.
The time and money associated with going through an audit, investigation and or fines is not worth it.
If I made $25,000 and could not offset the gains. Again I would pay the 20% or $5,000 to the IRS as the time and money associated with going through an audit, investigation and or fines is not worth it.

Sell a 1969 Hemi Daytona Charger for $500,000 that you owned for 35 year and purchased for $25,000.
Look for a lot of receipts, because the IRS is not going to send you a Christmas or Birthday card after you pay them $95,000+ for the $475,000 worth of gains you made, but they will lock you up if you don't pay up.

[ACUDANUT]

  What about the old man/women who does not trust banks and dies with 50K in the house ?

[Aero426]

 What about the old man/women who does not trust banks and dies with 50K in the house ?

The following article will be of interest.    https://theaneshow.wordpress.com/2014/06/13/opening-of-king-stutz-tomb-a-short-story-about-a-k-miller/

In the end, the recluse who stashed cars, gold, silver, coins and bonds died and the government (still) got their share.  

[ACUDANUT]

 If someone puts away cash/cars out of their own interest how can 'they" tax this property when they have already paid taxes on these cars, year after year for 50 plus years.

[RallyeMike]

Someday I might have a capital gain on a car and then I'll re-read this 

[Aero426]

Consider that in Illinois, they are in such fiscally poor shape, that the state has just changed the law so that any used car trade-in is now taxable over $10,000.    You already paid the full sales tax amount when you purchased the car.   The state is now taking another whack at it when you sell the car.   If your trade is worth $20,000 and you buy a $35,000 car, your taxable amount is no longer the $15,000 difference in purchase price, but $25,000.  It is double taxation. 

[ACUDANUT]

Illinois has become a disaster area. Thanks to Obama, who claims to represent the state, but never really moved there.   Chicago itself has drained most of the States extra revenue. I have Many kin folk from ILL.  Anyway, when I do visit, the gas is 50 cents higher per gallon. "gotta feed the unemployed people of color"  I was educated enough to know that black is not a color. ??