After paying off the last lease payment for a personal car over 3 years, I bought out the lease at its residual value of $14000. I then transferred the title and registration to my name, and payed use tax (i.e. I briefly owned the car). After a couple weeks, I sold the car for $22000.
Do I owe capital gains tax on the $8000 gain? This assumes $14000 is the cost-basis. However, some believe lease payments should be included in the cost-basis. If that is the case, then my cost-basis (lease payments + residual) would be more than the sale, and I would have a loss, and therefore owe no gain tax.
Perhaps the question should be, are lease payments part of the cost-basis?
Thank you in advance. Called the IRS the other day to get clarification. After being placed on hold for 90 minutes, a worker told me they no longer have employees to assist with this tax question.
