I have a lot of positive equity in my Volvo lease, however Volvo just stopped allowing the sale of a leased car to a third party. I intend to finance the car so I can turn around and sell it. My question is, would I have to pay capital gains tax on the profit I make from selling it, even though I made additional payments towards the vehicle during my lease?
Business lease or personal?
It was a personal lease. I have a lot of equity since I went way under my mileage, but of course I still paid for the depreciation through the lease.
This article indicates you would have a taxable capital gain if you sell it for more than you pay for it when you buy it. Understanding Taxes When Buying and Selling a Car - CarGurus
Here is a detailed article from Carvana about this issue. https://www.carvana.com/research/2020/03/what-to-know-about-taxes-when-you-sell-a-vehicle/
Would having leased the car before financing it allow me to avoid the capital gains?
Frankly, at this point, it may be best if you ask your tax accountant or tax preparer… advice from internet strangers in your specific situation may not be advisable at best. GLWT
Since you cannot deduct depreciation or loss on a personal car, you are correspondingly not taxed on any gains.
You will be considered a dealer if you have more than x transactions in a year, where x varies.
Yea, no capital gains tax.
Also, selling your personal car for an amount above your current loan payoff does not equal making a profit on it.
I’m not a CPA or tax professional, but I think you are providing misguided advice.
I’m going to use made up numbers here to simplify: Sam offers Joe the ability to borrow his car for $50/month and says you can buy it from me at the end of 3 years for $20k. Joe realizes that Sam’s car he has been using will be worth more because he didn’t use it as much as expected. Joe buys the car for $20k from Sam and sells it to Lucy for $25k.
In this example above Joe purchased Sam’s property for $20k and sold it to Lucy for $25k. This is a $5k capital gain because Joe has invested $20k in to the vehicle considering no other factors. Prior to Joe’s acquisition at $20k the property belonged to Sam.
Note to self: Claim capital loss of $33,500 on the Infiniti I sold in February.
Seems for cargurus at least that it would apply.
I wonder, however, if the purchase price being a result of the lease contract payments rather than a market value makes a difference here.
This isn’t a comparable situation. Did the car APPRECIATE? No. It just didn’t DEPRECIATE as fast as originally planned. To make your example work, it would be more like $200/mo for 36 mos, meaning $7200 was paid, then buy for $20k, for a total of $27,200, then sell it for $25k. A net loss of $2200.
I won’t try to claim I know how tax code works. I’m merely pointing out that the car still cost money, not make money. Huge difference, IMHO.
No misguided advice, just speaking from personal experience as someone who has been in the exact same situation the OP is asking about, and also someone with a personal tax accountant in the household.
Three cars ago I leased a 911 for 42 mos, bought it out at the end of lease, drove it for another 3 months before selling it to a dealer for $8k more than I owed. Of course I didn’t have to pay capital gains tax on that $8k or anything like that.
As mentioned above, you do not pay capital gains tax on any proceeds from the sale of a personal car, just like you can’t claim a loss on your taxes because you bought a new BMW for $60k and sold it 3 years later for $30k.
Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.
You have a capital gain if you sell the asset for more than your adjusted basis. You have a capital loss if you sell the asset for less than your adjusted basis. Losses from the sale of personal-use property, such as your home or car, aren’t tax deductible.
Everything above is directly from the IRS. Now, assuming the adjusted cost basis of the vehicle you purchased is at cost. Which it would be in the event that this thread is based on. Then selling it more than that cost is, plain and simple, a taxable event as a result of capital gains.
I agree with what you’re saying, but the misconception in this thread is that the cost basis for capital gains would be what the lease-end buyout is, since technically that’s when you buy the car from the leasing bank or what any “profits” would be measured against.
If I pay say $30k in lease payments then buyout the car for $40k at lease-end and then flip it to a dealer for $42k, I most definitely do not have a $2k capital gain, as the cost basis is not $40k but rather the $30k payments + $40k buyout.
Beyond that, cars are such depreciating assets that it’s exceedingly rare anyone would ever be subject to capital gains tax on a sale of a late model anything that’s not an exotic.
Note to self. Use @ugfish as CPA to claim tax losses.
And that’s exactly how I see it. Right or wrong, I ain’t claiming that on my taxes.
And, hell, even if you are forced to claim it, then all the expenses incurred to obtain that gain are deductible, no? Hey, 37.5 cents per mile to get that car to precisely the correct mileage and condition to get that sale price. It also took up sq footage in my attache garage all that time. I had to advertise it, detail it, spend time showing it … the list is extensive!
I agree with @ugfish that it would not make a difference.
Should you not report this windfall and are ever audited …I will pay the penalty
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