I received a used car as a gift (zero cost) from my uncle a few years ago. If I sell it now, do I need to report to IRS when filing tax?

[warbit88]

Sell a used gift car in California

[Opus 17 · Accepted solution]

 Your underlying assumption is correct, that when you sell something for more than your cost basis you have a taxable capital gain.  The fact you are missing is that when you receive something as a gift you also receive the original owner's cost basis. Therefore, you only owe capital gains tax on the sale of the car if you sell it for more than your uncle's cost basis.  Your uncle's cost basis is probably the price he paid for it, unless this car was used primarily for business and has been fully depreciated. 

[MPiling]

Hi, quick question on this.

I got a golf cart from the Miami Dolphins about 11-12 years ago. It was their old medical golf cart, decked out in Dolphins colors and Dolphins logo. They were getting ready to load it into a large dumpster, and I hauled it home and restored it. I got the golf cart for free, then gave it to my parents in The Villages. Years later, my dad didn't want it in his garage anymore, and I sold it on eBay. Since I paid nothing, and... I have absolutely no idea what the Dolphins paid for it. I sold it on eBay for I think ~$3,000... can't remember exactly but I can look it up if need be. Does this need to be claimed on my 2020 taxes?

Thanks!!!

[Critter-3]

Yes it needs to be reported if you have a gain on the sale ... your cost basis is the amount it cost you to restore it ... not including your labor.  

[Opus 17]

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@MPiling wrote:

Hi, quick question on this.

I got a golf cart from the Miami Dolphins about 11-12 years ago. It was their old medical golf cart, decked out in Dolphins colors and Dolphins logo. They were getting ready to load it into a large dumpster, and I hauled it home and restored it. I got the golf cart for free, then gave it to my parents in The Villages. Years later, my dad didn't want it in his garage anymore, and I sold it on eBay. Since I paid nothing, and... I have absolutely no idea what the Dolphins paid for it. I sold it on eBay for I think ~$3,000... can't remember exactly but I can look it up if need be. Does this need to be claimed on my 2020 taxes?

Thanks!!!

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In all likelihood, the organization depreciated the property during the course of their business, so their adjusted cost basis was zero.  So whether it was a gift or a "found" item, your cost basis is zero, and the entire selling price is a taxable capital gain.  You are required by law to report it and pay taxes.  Since you held it more than 1 year, it is a long term capital gain, and the tax rate will be 15%, or possibly even zero % depending on your other income.  But it should be reported as the sale of personal capital property on schedule D. 

[MPiling]

Awesome... thanks!

Haha... thanks for costing me money on my taxes!

[Opus 17]

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@Critter-3 wrote:

Yes it needs to be reported if you have a gain on the sale ... your cost basis is the amount it cost you to restore it ... not including your labor.  

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In my answer I forgot to include your restoration.

Your initial cost basis is zero.  You can increase your cost basis by any amount you spent on restoration.   Routine maintenance and simple repairs do not increase the cost basis, only amounts that improve the item, extend its useful life, and raise its value.   You can't include anything for the value of your labor and time, only amounts you paid for materials or to other workers. 

Then your taxable gain is the difference between the selling price and your adjusted cost basis.  If audited, you would need to be able to prove your restoration costs with receipts.  The tax code assumes all income is taxable unless you prove otherwise.