Traded in car for more than I paid for it

[SS338]

Hi,

I bought my car (personal use) in August 2020 for around $13,000.00 (including tax, tags, title) and traded it for a new car in November 2021. The trade-in allowance I got for it was $16,000.00. Is this $3,000.00 difference subject to capital gains tax? How would I report it since I didn't get any tax documents like a 1099 and can I include the sales tax, tag and title fee, optional fees like documentary fees, etc. in the capital gains base if it was taxable?

Thanks!

[bosso3]

I think you will find a good explanation of your situation and how to handle it in the link below.

Note:  The "basis" for your asset is what you paid for it, plus any significant improvements (those that would be expected to last a long time - like adding an upgraded stereo to it).

The explanation of how to handle this in Turbotax 

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/where-do-i-report-income-from-se...

The IRS description of assets and the basis of assets

https://www.irs.gov/taxtopics/tc409

This has a link to Publication 551 Basis of Assets.

[SS338]

Thanks for your reply!

I read the IRS description quite a few times but I feel I cannot make sense of it. The dealership originally listed the car for around $12,000.00, after taxes, tags, title, documentary etc I paid $13,000.00. So for the purchase price, would I put in $13,000 or $12,000? I just wonder whether I can include the sales tax, tags, title, and documentary fees in the base. Technically, I wasn't able to buy the car without paying the fees and taxes but I'm just confused whether the IRS considers them as part of the base or not. Any help would be appreciated, thank you!

[bosso3]

Yes, if $13,000 is the original cost you paid to acquire the car, then your basis  that, plus any improvements as previously described..

[Cynthiad66]

Yes the purchase price includes the expenses of sale and your cost/basis for the car is $13,000.00.

The trade in value would be considered the sales price of the business vehicle given up to acquire the new vehicle. The difference between that value and the cost of the vehicle, less depreciation, will be the gain or loss that you would recognize on your tax return for the disposition of the vehicle.

You report the sale under the Invetment section of the return.  Go to Federal, Wages and Income then scroll down to Investment then click start and follow the prompts.

When you sell a car for more than it is worth, you do have to pay taxes. Selling a car for more than you have invested in it is considered a capital gain. Thus, you have to pay capital gains tax on this transaction.

@SS338

[SS338]

Thanks @Cynthiad66 !

The car was a personal car, not a business one but I guess that doesn't matter. Just to clarify because I want to understand what Turbotax is doing and I used to file paper tax returns. When I use Turbotax, since I did not get any 1099 for the sale of my car, Turbotax would automatically fill a form 8949 Part II (long term capital gains not reported on Form 1099-B) for me and put that on my Schedule D? Thanks!

[fanfare]

@SS338 

Nobody puts their personal adventures at the car dealership on their tax return.

for a business vehicle it is a different matter since it is deductible.

but, you can additionally deduct the sales tax paid on this major purchase if you are itemizing.

[bosso3]

Replying  to @SS338 @fanfare

Just because you say nobody reports this does not mean it is correct.  The IRS would not agree with you on this.  Also, the sales tax is part of the basis of the car, and it is NOT deductible on itemized deductions.

I suggest that giving advice that does not match IRS instructions, code or judicial decisions on a forum like this is not a good practice.

Of course the original questioner has a choice  - whether to follow the IRS rules or not.

[fanfare]

@bosso3  @SS338 

please refer to 2021 Instructions for Schedule A.
State and Local General Sales Tax Deduction Worksheet.
instructions for worksheet Line 7 are on page A-6.

[Vanessa A]

Yes, TurboTax would automatically fill out the 8949 and put that on your Schedule D.  

As for being personal vs business...it does matter mostly because of how it is treated.  If you were selling a business asset it would be entered differently than a personal asset. 

@SS338

[fanfare]

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