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. ??

[AKcharger]

Hmmm, I sold my '70 in Oct. and NEVER thought about this....crap!

Good topic, thanks guys!

[cudavic]

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.

Cash:

If you chose to put your earned income in a mattress or home safe that is your choice, you earned the money and have paid taxes on it.
The problem however is lets say you stash away $1,000.00/month over the next ten years and then decide to spend it. At that point it can start to become an issue.
You now have $120,000 dollars in untraceable cash. Wait, what do you mean? I earned it and chose to put it in my mattress or in a home safe.
Say you are stopped by the police with $12,000.00 while on a trip. Law enforcement asks why you have such a large amount of money on you?
You say that you are going to look at a car that you are interested in purchasing. They don't believe you and seize the money. Does it happen? YES.
Now lets take that same scenario, only this time you are carrying $120,000 dollars to get a great deal on a 1970 Superbird.
The seller is extremely interested in selling the car $20,000 dollars below market value because its a cash deal.
Police pull you over for speeding, by chance they discover you have $120,000 dollars on you. They ask you why you are carrying such a large amount of money?
You say that you are going to look at a car that you are interested in purchasing. They don't believe you and seize the money. Does it happen? YES.

Moving along to cars:

Cars typically are not a very good investment. You purchase a car, drive it and sell it some years later for a loss. No bid deal. The IRS / Government could care less that you lost money.
They only seam to care when you make money. Funny isn't it? In 1975 you purchase a 1969 Daytona Charger with a 426 Hemi in it from a used car dealership.
Your parents tell you you are nuts as insurance premiums and gasoline cost a fortune and you can only get gasoline every other day.
Despite you parents objections you purchase the car for $3,000.00 and pay the associated taxes of lets say 5% of sale price or $150 dollars.
Flash forward to 2020, some 45 years later. Your 1969 Daytona is now worth a half of million dollars, other than the original bill of sale you have kept no receipts.
If you decide to sell this car and cannot produce any receipts other that the original bill of sale you are looking at paying capital Gaines taxes on $496,850 dollars or approximately $99,370 dollars of tax to the IRS.

Is it Bullsh_t??? I don't know, we all need to pay some tax to maintain this country, the question is how much? And is that how much fair?
Warren Buffet can decide to purchase $10 million dollars worth of stock in XYZ company, hold it for 1.5 years, make a 10% gain and pay a 20% capital gain tax of $200,000 dollars on the $1 million he earned.
Meanwhile, lets say a doctor who has gone to medical school and has interned for several years, makes $600,000 dollars a year must pay a little bit over 30% in federal income tax or $182,500 dollars to the IRS alone.
Lets say this doctor lives in California. He must also cough up a bit over $58,000 dollars to the state of California. Not to mention $8,200 in Social Security taxes, $8,700 in Medicaid taxes.
Out of $600,000 dollars worth of gross income he gets to keep roughly $342,600 dollars of his earnings.

Summary:

This Country is broke, due to the recklessness and irresponsibility of our elected officials.
While I understand the need to pay for certain privileges to live in this country, for our security and it's amenities. I despise Government WASTE.
We the USA, are over $23 trillion dollars in debt, and keep growing this debt. To pay off this debt it would require approximately $70,000 per citizen or $187,000 per tax payer.
We will never pay off this debt! The Feds will just continue to print money until our currency eventually collapses.
This will not end well.

Getting back on topic:

Must you declare and disclose a high dollar sale of a collector car? By law, YES.
If you choose to do so or not is an individual choice. If you chose not to, you take the risk of getting caught.
If it is a substantial dollar amount the IRS will not be pleased and will get their money from you.
Furthermore they may decide to punish you with imprisonment.

Sincerely Vic









   

[Birdflu]

Geez Vic! I somehow feel less motivated to run my business today...thanks...

[cudavic]

Geez Vic! I somehow feel less motivated to run my business today...thanks...

Sorry, however I get the same feelings.
It is a true shame, the harder you work the more they take, the lazier you are more more they incentivize things. 

[chargervert]

Hmmm, I sold my '70 in Oct. and NEVER thought about this....crap!

Good topic, thanks guys!

The black Suburbans are circling your neighborhood as we speak! That will teach you to sell a 70!

[odcics2]

Geez Vic! I somehow feel less motivated to run my business today...thanks...

Sorry, however I get the same feelings.
It is a true shame, the harder you work the more they take, the lazier you are more more they incentivize things. 

Without mentioning names, years ago, a certain politician running for president paid 10% tax on his millions!! 

[Mytur Binsdirti]

"lets say you stash away $1,000.00/month over the next ten years and then decide to spend it. At that point it can start to become an issue.
You now have $120,000 dollars in untraceable cash."


120 large in the mattress is a baller starter kit.  

[70Sbird]

Ok, let me ask another question, what about inheritance taxes?
I live in the great state of Illinois and for us, you have to leave your individual heirs something like $600,000 before inheritance tax comes into play (at the time I settled a relatives estate a year or two ago).
So, lets go back to the scenario of buying a car cheap (say $5000 from the example before) in the 70's, then leaving it to your kids today. Obviously there was no capital gain to the  deceased owner - the car wasn't sold and he's gone now. Soooo, the kids inherit the car at lets say $100K appraised value. as long as the kid doesn't go over the total individual amount needed to "trigger" inheritance tax, they get the car and are then free to sell the car at that same $100K and don't pay capital gains then correct?
Just wondering?

[Aero426]

Ok, let me ask another question, what about inheritance taxes?
I live in the great state of Illinois and for us, you have to leave your individual heirs something like $600,000 before inheritance tax comes into play (at the time I settled a relatives estate a year or two ago).
So, lets go back to the scenario of buying a car cheap (say $5000 from the example before) in the 70's, then leaving it to your kids today. Obviously there was no capital gain to the  deceased owner - the car wasn't sold and he's gone now. Soooo, the kids inherit the car at lets say $100K appraised value. as long as the kid doesn't go over the total individual amount needed to "trigger" inheritance tax, they get the car and are then free to sell the car at that same $100K and don't pay capital gains then correct?
Just wondering?

In my case, when I inherited a particular car, as you described,  I got a step-up in basis to the current value at that time. 

[cudavic]

Ok, let me ask another question, what about inheritance taxes?
I live in the great state of Illinois and for us, you have to leave your individual heirs something like $600,000 before inheritance tax comes into play (at the time I settled a relatives estate a year or two ago).
So, lets go back to the scenario of buying a car cheap (say $5000 from the example before) in the 70's, then leaving it to your kids today. Obviously there was no capital gain to the  deceased owner - the car wasn't sold and he's gone now. Soooo, the kids inherit the car at lets say $100K appraised value. as long as the kid doesn't go over the total individual amount needed to "trigger" inheritance tax, they get the car and are then free to sell the car at that same $100K and don't pay capital gains then correct?
Just wondering?

I believe that to be correct.

[AKcharger]

Hmmm, I sold my '70 in Oct. and NEVER thought about this....crap!

Good topic, thanks guys!

The black Suburbans are circling your neighborhood as we speak! That will teach you to sell a 70!

[1970Moparmann]

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. ??

This is why 40,000 people are leaving IL each year!   The said part, the average household income of these people are $135,000.   All that tax money is hurting the state more.   Because people have their head up their ass and trust politicians, it will never change.   I'm just waiting for when my kids are older and getting out!

[smithenhiven]

Ok, let me ask another question, what about inheritance taxes?
I live in the great state of Illinois and for us, you have to leave your individual heirs something like $600,000 before inheritance tax comes into play (at the time I settled a relatives estate a year or two ago).
So, lets go back to the scenario of buying a car cheap (say $5000 from the example before) in the 70's, then leaving it to your kids today. Obviously there was no capital gain to the  deceased owner - the car wasn't sold and he's gone now. Soooo, the kids inherit the car at lets say $100K appraised value. as long as the kid doesn't go over the total individual amount needed to "trigger" inheritance tax, they get the car and are then free to sell the car at that same $100K and don't pay capital gains then correct?
Just wondering?

I went through this a few years ago when my mom passed.  We live in PA, where inheritance tax is paid regardless of the estate's total value.  She left a few vehicles, the most valuable of which was a 2013 Dodge Ram.  At the time, when we were trying to get things valued for the estate, a Dodge dealer said they would buy it for $22k, and gave a written quote saying as such, so the estate attorney felt that would be a good "current market value" for estate purposes.  Since her other two cars were worth about that combined, I kept those and let my younger brother have the truck after the estate was finalized.  A few months later he decides to sell it, and it sells for $27k.  He then had to pay capital gains on the $5000 "profit" (between Fed and State it was over $1400).  Looking back, it would have been way cheaper to say the truck was worth $27k in the estate proceedings and pay PA's inheritance tax of 4.5% on that higher value (which would have been an extra $225); then upon selling it later no gains tax would have been owed.  I'm still a little upset that the attorney didn't advise us on those details during the estate process, but oh well, it is what it is; can't blame him too much, he's an estate attorney not a tax attorney but he had to have seen stuff like that before,...I digress.

So if you inherit something, its probably best to over estimate the value (especially if you live in a non-inheritance tax state), so that you "step-up" your basis, especially if you intend to sell it in the foreseeable future.

[held1823]

while looking at the auction listing for an upcoming superbird at russo & steele next week, i happened to notice they are holding a seminar on this very topic

https://russoandsteele.com/taxplanning/

[ACUDANUT]

Inheritance tax ?. I thought it had to be over 2 million. That's tax-ion upon tax-ion.  That is complete bullshit.  Kind of like paying tax on a car you have had for 35 years and never drive it.  Why don't they tax Horses, Cows and Pigs and your dead kin folk. 

[ksquared]

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.

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

I was just wondering about a couple of the details mentioned by Troy (Aero426):
1)  It was my understanding that "horse trading" does count.  If you trade an engine you've got $10K into for the $10K nosecone, that should count toward the investment into the car, you didn't get the $10K nosecone for "free."  Now, I could be wrong about this, but if you trade the hemi engine you paid $100 for in 1977 for the $10K nosecone, I would think you've then got $100 additional investment into the car, not a capital gains tax for a profit of $9900 and then the $10K investment into the car.  I thought that doing it as a trade, rather than a sale and subsequent purchase, had the precedence.
2)  I thought storage would also be counted, as this is a price that isn't paid on a "daily driver."  Now, where it would get really interesting is if you bought the car and then built a garage to store it, deductible or not?  Of course, the garage isn't going to be torn down when the car is sold, but there should be some deduction for this required cost of protected storage.

[Redbird]

Sports Car Market magazine over the years has had well written and researched articles on what are allowable items regarding how restoration costs can be legally tied to the base value of a collectable car.

The jest of this is that someone does not get to make their own rules because they feel it is right.

Very few collectors of cars have set up a proper business, filed required paperwork every year, and recorded and paid expenses as a business each year.

Most collectors have a hobby, not a business.

[1969daytona]

I was going down the street and think that we have the most insane tax system over here.
But as I read true this it seems that you guys have som crazy taxes in the US as well.

Thanks for sharing

K-E

[ACUDANUT]

I am moving to Norway.   

[Aero426]

I was just wondering about a couple of the details mentioned by Troy (Aero426):
1)  It was my understanding that "horse trading" does count.  If you trade an engine you've got $10K into for the $10K nosecone, that should count toward the investment into the car, you didn't get the $10K nosecone for "free."  Now, I could be wrong about this, but if you trade the hemi engine you paid $100 for in 1977 for the $10K nosecone, I would think you've then got $100 additional investment into the car, not a capital gains tax for a profit of $9900 and then the $10K investment into the car.  I thought that doing it as a trade, rather than a sale and subsequent purchase, had the precedence.
2)  I thought storage would also be counted, as this is a price that isn't paid on a "daily driver."  Now, where it would get really interesting is if you bought the car and then built a garage to store it, deductible or not?  Of course, the garage isn't going to be torn down when the car is sold, but there should be some deduction for this required cost of protected storage.

I'll defer to the CPA, but a couple of thoughts:

1)  Can you prove the value of what you traded for at the moment you made the transaction?   Do you have documentation?     In the scenario posted at the start of the topic, having occurred so long ago, most of us will not.    I think it would be tough sledding to argue that case.

2)  Storage for almost all of us is a hobby expense.  It does not improve or decrease the value of the things being stored.     If you built a garage, it certainly may increase the value of your real estate.   

[chaaargerb]

Storage for almost all of us is a hobby expense.  It does not improve or decrease the value of the things being stored.     If you built a garage, it certainly may increase the value of your real estate.

What if I rented a heated Garage/Shop to store and work on the bird? I had rented a 2 1/2 car heated garage from a women for about 2 years. In the winter months with the cost of propane and electric it was costing me about $550/$600 a month. In the summer months $450/$500. For the most part the shop was for the bird. I did use the 2nd stall to do some repairs on my daley drivers from time to time.

[66FBCharger]

 

[Aero426]

Storage for almost all of us is a hobby expense.  It does not improve or decrease the value of the things being stored.     If you built a garage, it certainly may increase the value of your real estate.

What if I rented a heated Garage/Shop to store and work on the bird? I had rented a 2 1/2 car heated garage from a women for about 2 years. In the winter months with the cost of propane and electric it was costing me about $550/$600 a month. In the summer months $450/$500. For the most part the shop was for the bird. I did use the 2nd stall to do some repairs on my daley drivers from time to time.

I see where you are going with "work space dedicated to restoration".   But as you are not in business for profit,  my gut tells me it would be viewed as hobby expense versus a restoration cost if you were called on it.   Also, as soon as you disclose that you do "other stuff" in the garage, it is clearly not dedicated to restoration and moves into a gray area.  Cold storage without work being performed?   I don't think that would pass the smell test.      

Now if you rented a professional spray booth to prime or paint the car, that probably could be considered a cost of restoration as you cannot legally paint at home.    For one thing, it is specialized and it is also very specific.    

Again, I'll defer to the CPA.   You really need to run these scenarios by a pro.  John Draneas is an attorney who writes the Legal Files column for the previously mentioned Sports Car Market magazine.   He specializes in estate planning and collector car law.  If you cannot get answers locally, it's probably inexpensive to have a phone consultation and get answers to your specific questions.     http://draneaslaw.com/practice-areas/

[fastmark]

I've gone through some calculations with my CPA and certified financial planner for years. When  my Dad passed, his half of the estate went into a trust with the current market value declared at time of death. It was all real estate. At the time, the limits were $660,000. Everything we have sold after his death, we have paid gain on the amount over that declared value at capital gain rates. Cars would be no different. Right now the limit is 6 million, I think.  Its  less than my moms half is now. HOWEVER, that number could change at any time. Clinton wanted to do away with the exemption all together and tax the entire estate at ordinary income! I imagine most of the other liberal politicians will go for that so they can pay off the nation debts. Seams the politicians and extremely wealthy always figure out a way to keep their money.

Their is actually a law that the government can enter your house and seize any large sum of cash unless you have bank records where it came from and proof you have paid taxes on it. With the IRS, you are guilty until proven innocent. It's their call. I've paid lots of taxes in my life and it sucks. Especially when you see first hand how the government wastes it. I have tenants on the government tit that have their housing paid for, their food paid for and disability payment because they figure our a way to cheat the system. All the time while their no good boyfriend lives there for free to buy the drugs, beer, cable tv, etc.

Our country is in sad state of affairs. Our founding fathers put a clause in the constitution REQUIRING the citizens to overthrow a government that does not follow the constitution they wrote. We are way past that. In the end, we all die and the assets we collect will do us no good. Either you believe in evolution or a Supreme Being, but either way you take nothing with you.

[1969daytona]

I am moving to Norway.   

I guess if you not are in to "new" cars you will be fine.

I paid just north of 50K USD in tax when i bought my 19 durango and it is only a 2 seater. app 130K USD if you want more seats..

But on the old cars (older than 20years) we pay only 25% tax on the paid amount of the car and shipping to Norway.

Typical cost pr old car pr year is 250-350usd with insurance.

K-E

[69 500]

 I would really like to see code #'s on that law you are talking about,were they can sieze your cash in home.

[Dragon Slayer]

It has been well document on the news about the authority law enforcement has to seize excess cash.  They get to keep it for the police department use I believe, so it is almost incentivized.  What law abiding citizens have to go through to prove it was not for illegal use is pretty steep.

""While the police only occasionally took advantage of civil forfeiture in the early 20th century, it truly exploded in popularity in the 1980s, with the rise of the War on Drugs. In 1984, President Reagan enacted the Comprehensive Crime Control Act, which enhanced the ability of police officers to seize cash from anyone and everyone suspected of a drug crime. The goal was to systematically dismantle the drug world by seizing cash.

In the zeal of this anti-drug atmosphere, the low burden of proof required of civil forfeiture seizures was seen as an asset.

The War on Drugs can be credited with the rise in use of civil forfeiture laws; Via UDPS

Aside from its abuse of civil liberties, civil forfeiture posed a major conflict of interest: the police got to keep whatever assets they seized. This gave them tremendous incentive to, in the words of one cop, "up the seizure game." A 1993 Los Angeles Times article harps on some of these abuses:""


I guess some of you need to start parting out your cars small sections at a time, to limit the tax liability or keep it under the radar/screen. 

[Chargen69]

  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.

in the computer age you have to understand that one time big deposits aren't as big a deal as you think they are.  a series of deposits will get you investigated quick

my wife works for one of the big banks

[thedodgeboys]

My kids are going to hate me as ill let them clean up all this mess I'm planning on leaving them...  ::


Damn shame,

[XS29J]

I love when buyers can only pay you with a check BUT DO NOT want you to WRITE in the sale price on Title...

[Arnie Cunningham]

Hey All,
Although the 1031 loophole appears to have been closed for all but real estate, I just wanted to offer a caution about this particular type of exchange.  My father entered into a 1031 exchange years ago.  The property he sold was free and clear of any "leverage" or debt.  The group offering the exchange didn't tell him he was going to be investing in a leveraged property.  In truth they weren't competent enough to know the difference.  Once invested in a leveraged property (one with debt attached) the investors are responsible for that debt in a strange way.  If the first leveraged property is sold and a second 1031 exchange takes place, the amount of leverage must be the same or more.  If the new property has less leverage associated with it, the IRS considers the decrease in debt to be income to the investor.  In certain cases the investor could lose the entire investement due to the "taxable event" that takes place.
If anyone has more input on this subject please chime in.  I am not an expert, just an observer of what has transpired.
Brennan R. Cook

[RSI700VIPER]

I see that a lot of posts mention the need to keep receipts to offset capitol gains when selling a collector car.  It is my understanding that the documentation needs to be "written."  Several years ago, a buddy of mine was audited by the IRS about the sale of his "real property" which included a number of things including a collector car.  He provided what receipts he had, and a log of dozens of entries that included cash purchases of parts from swap meets, restoration services, and other items which he didn't have receipts for.  The IRS accepted the log as "written" evidence and applied the logged amount to the basis of the car.  Receipts are obviously preferred but not absolutely necessary.