RE: [Chrysler300] Selling a 300

["Tom" <tdcox@xxxxxxxxxxxxx>]

Thanks to Noel for a far more comprehensive discussion of the issues surrounding income and losses of collector cars. Tax return treatments are complex and fraught with pitfalls. Anyone that plans to sell a valuable asset should consult with their tax professional prior to embarking on the transaction. The family income level, the purpose of owning the vehicle and may other factors affect the tax treatment of a sale as outlined below by Noel. Buyer and seller beware!!

 

From: cpaviper@xxxxxxxxxxx [mailto:cpaviper@xxxxxxxxxxx] 
Sent: Monday, April 22, 2013 10:23 PM
To: Tom
Cc: jerrylindsay300h@xxxxxxxxxxxxxxx; Listserver Chrysler Club; Terry Mctaggart
Subject: Re: [Chrysler300] Selling a 300

 

Hello Group,

 

Adding to what Tom has laid out - the U.S. tax regulations provide for 3 classifications from which an owner is considered - Dealer, Investor, Collector - and different income tax outcomes result under each of these. State and local sales/use tax issues are outside this income tax discussion.

 

Dealer - someone engaged in the trade or business of selling, primarily to customers. Court cases further define Dealer status. The U.S. Supreme Court stated the taxpayer must be involved in the activity with continuity and regularity, and the primary purpose must be for income or profit. Dealers are subject to ordinary income tax rates on their taxable income; they also benefit from their net business losses. 

 

Investor - buys and sells primarily for investment, rather than for personal use and enjoyment, or as a trade or business. Investors can deduct their investment expenses as an other itemized deduction subject to income limitation. Investors can also report capital loss on sale. The courts have examined various factors (Dealer vs. Investor), including -

*	purpose for which the property was acquired
*	purpose for which it was held
*	frequency, continuity and substantiality of sales
*	duration of ownership
*	use of proceeds from sale of the property
*	business of the taxpayer
*	time and effort devoted to sales activities re the asset in question, by developing or improving that asset, soliciting customers, and advertising

   Indicators of Investment -

*	investment purpose was of primary importance
*	collector must intend to hold the [300] for investment (collector's financial position, investment history, believes [300] is an inflation hedge, and whether collector has made personal declarations of investment purpose and intention)
*	consulting with experts on purchases
*	reading pertinent publications
*	participating in collection-related activities
*	devoting time to the collection
*	making an effort to display the collection publicly, so as to enhance its value
*	developing expertise about the collection
*	keeping business-like records and using a business-like method of accounting for the collection

Collector - buys and sells primarily for personal pleasure; is neither dealer nor investor. Ordinarily may not deduct expenses or losses. The U.S. long-term capital gain rate for collectibles is 28%. A Collector's expenses may be deductible as an other itemized deduction, up to the amount of income derived from that activity.

 

Tom also mentions the possibility of a tax-deferred (Section 1031) exchange transaction, that's available to Dealers and to Investors, but not to Collectors. There's a clear incentive for this purpose to report the transaction as an Investor. It's important to note that the sales proceeds must be fully deposited into a tax-deferred escrow account, to be reinvested in the replacement vehicle, in addition to several other technical requirements that must be fulfilled.

 

There's yet another type of exchange - "Involuntary Conversion" (Section 1033) exchange in casualty loss circumstances such as flood, fire or theft damage, and reinvestment of insurance proceeds received. Many great cars were badly damaged here in the past week with the Chicago area flooding we've had in the past few days. In this type of exchange, the owner can receive the cash proceeds, and has until the end of the 2nd tax year following the casualty loss year to reinvest these proceeds to defer a taxable gain.

 

And, note - collectibles are not allowed in self-directed retirement - IRA, SEP - accounts. 

 

Documentation is key! Build your story around your tax position. These comments just begin to touch upon the issues that come into play, and there are significant gray areas within which you can form your own interpretations.

 

Noel Hastalis

Burr Ridge, IL

F coupe

 

  _____  

From: "Tom" <tdcox@xxxxxxxxxxxxx>
To: jerrylindsay300h@xxxxxxxxxxxxxxx, "Listserver Chrysler Club" <chrysler300@xxxxxxxxxxxxxxx>, "Terry Mctaggart" <terrymct999@xxxxxxxxx>
Sent: Monday, April 22, 2013 10:02:48 AM
Subject: [Chrysler300] Selling a 300

  

Hey Terry and Jerry,

Generally, a car is considered a personal asset (not a business asset) and if you sell it for more than you have invested in it, it is taxable income. On the flip side, losing money on the same car is not deductible. This isn't fair but it is the tax law.

The investment aspect would include what you paid for it and any improvements (similar to a house) such as repaint, engine rebuild, etc. but would not include normal maintenance (tune-ups, oil changes, etc.). If you inherited the car, the initial value of the car is the Fair Market Value on the date of death of the previous owner.

The good news is that it would be subject to capital gains rates, assuming you owned it for more than a year.

One other alternative that is somewhat tricky would be a tax-free exchange. This is where you trade your car for another and as long as you don't receive any cash on the trade, the transaction would not generate any taxes due. You would, however, have to report the trade on your tax return. For example, if you traded a 300C for a 300F and traded even, there would be no tax due. So simply trade your ride for something else you have always wanted!!

If you have any specific questions, let me know.

Tom Cox

From: Chrysler300@xxxxxxxxxxxxxxx <mailto:Chrysler300%40yahoogroups.com>  [mailto:Chrysler300@xxxxxxxxxxxxxxx <mailto:Chrysler300%40yahoogroups.com> ] On Behalf Of jerrylindsay300h@xxxxxxxxxxxxxxx <mailto:jerrylindsay300h%40tampabay.rr.com> 
Sent: Monday, April 22, 2013 10:07 AM
To: Listserver Chrysler Club; Terry Mctaggart
Subject: Re: [Chrysler300] Selling a 300

Great question Terry, something to look at and consider. I plan on egtting rid of some of my 62's this year. My age and I can't do the things I used to do and can't afford to pay others. 

Jerry Lindsay

---- Terry Mctaggart <terrymct999@xxxxxxxxx <mailto:terrymct999%40yahoo.com>  <mailto:terrymct999%40yahoo.com> > wrote: 
> Looking at the asking and sales prices of 300s, some of our cars are beginning to be worth real money. Does anybody out there have any knowledge / experience on how to handle the tax issues, both federal (capital gains) and local (sales) issues of such an exchange? Terry McTaggart
> 
> [Non-text portions of this message have been removed]
> 

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