Selling collector cars and capital gains questions.

[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