Is there a CPA in the house?

[Bandguy]

We are thinking about possibly trying to sell one of our cars in the next few months as a private seller. We have never done this before. I have a tax question:

1. How much money should we plan to send in to the IRS for selling the car (% of profit)?

 

[Dan....]

I'm not a CPA, but just a question:

When you said that you made a profit on the sell of the car, that means that you sold it for more than you bought it; correct?

Eg. You bought the car for $1000. You sell it for $1500. You make a $500 profit.

Eg. You You bought the car for $2000. You sell it for $1000. You did not make a profit.

Personally, I've never sold a car on which I've made a profit. Most people don't, as cars tend to depreciate in value.



[Edited on 7-14-2006 by Dan....]

 

[Bandguy]

Dan,

I used the wrong word. My apologies. No, I certainly will not be making a profit.

 

[VictorBravo]

I'm not a CPA, but I do taxes. As a general rule, if you didn't make a profit, there is no income.

What you are talking about is capital gains. If the car is privately owned and you have not deducted depreciation on it, it is not, as near as I know, a taxable sale (for IRS purposes).

BUT, your state may want its share of sales or excise taxes.

Vic

 

[gwine]

I can't imagine how you would have to pay taxes on selling something for a loss, but there is a tax angle to consider, especially if you are selling your car and buying another one. You will have to pay state sales tax on the car you buy, and if you are trading a car in then you will only pay tax on the difference between the two values.

For example:

New car = $40000
Trade in = $20000
-----------------------
Taxable = $20000 at 5% (Wisconsin) = $1000

Now consider this:

New car = $40000 = $2000 state sales tax
Sell car = $20000 = no tax paid by you (but the buyer will have to pay the state)

So the net result is that you paid out $21000 in the first example and $22000 in the second. In other words,, you would have to sell the car privately for $21000 to come out the same.

See this site and, to be balanced, this one.

Just a thought for consideration.

 

[Bandguy]

I will not be buying another one after the sell. I plan on paying off some debt with the money I recieve from the car.

 

[Ambrose]

No profit, no income tax. Sales tax will vary by location, but the buyer is responsible for those when he registers the auto with the state and reports the purchase price.

 

[Bandguy]

Thanks to everyone for your help.

 

[VictorBravo]

Originally posted by Chad Degenhart
No profit, no income tax. Sales tax will vary by location, but the buyer is responsible for those when he registers the auto with the state and reports the purchase price.

Chad, re the sales tax, the responsibility varies by state. In Washington, the state can come after the seller if it thinks the purchase price was too low. (How's that for a free market?).

Vic

 

[Ambrose]

Vic, that happened to someone I knew in Florida, but I thought they still went after the buyer. My memory may not be correct, though. I guess they assume that the price reported was not the actual price, but represents a fraudulent attempt to evade sales taxes by under-reporting the sales price.

Does Washington just assume a FMV and demand the difference in sales tax from the seller?

 

[VictorBravo]

Originally posted by Chad Degenhart

Does Washington just assume a FMV and demand the difference in sales tax from the seller?

It assumes FMV but won't question values up to $2000 below FMV. It won't even look into sales under $3,000. They have a form that allows you to explain a lower value, if they don't like the explanation, they will charge the FMV. There is an appeals process, but most people don't bother because of the hassle.

They will go after the buyer first but they can come after the seller, especially if the buyer has left the state and failed to provide the proper form of transfer. In once case I know of, a person who sold two family cars within a year was considered a retail seller. The state not only wanted him to pay the sales tax, it wanted him to get a business license. The state lost that one, but only because the person fought back.

 

[Bandguy]

WOW!

I am so glad I don't live in Washington. I hope Arkansas isn't like this.

 

[Bandguy]

Hey everyone. Just wanted to let everyone know that I just sold my car and we are going to send every single penny of it to pay off a credit card debt after paying a tithe on it. Praise the Lord for his rich blessing during this time. I just wanted to share the good news with everyone.

[Edited on 9-9-2006 by Bandguy]