Assuming car is sold to third party (not dealer) for a substantial profit vs. the lease buyout. Is the profit a taxable capital gain? Thank you.
yes, it’s capital gains.
Thanks. A broker on here was trying to convince me it wasn’t.
I mean it’s possible you won’t be 1099 but technically it’s taxable income. Whether you choose to report it is your business
There is much debate as to if it is capital gains vs straight income and what the basis for any gains would be. This is best discussed with one’s tax guy.
When discussing with a tax professional, remember to distinguish between profit and equity.
What you’re describing is probably equity.
Profit and capital gain will be calculated differently
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What is the actual profit? If you paid more into it than you sold it for, it’s considered a capital loss, and you don’t need to pay tax on the sale.
We have had cpas post on here that argue that and some that argue the opposite.
I’m yet to see an consensus.
I wouldn’t rely on any responses here for legal or tax advice; consult a professional. Frankly, even some of the deal advice around here can be suspect and therefore requires due diligence.
I believe it is a cap gain either way, third party sale or lease buyout.
The whole profit vs equity debate is interesting. Obviously you subtract registration costs, sales tax costs, maintenance, repairs, and customization you did to the vehicle. But what about gas? Technically a cost of keeping the vehicle running. How about insurance? You need insurance to keep the vehicle? What about space in your garage/driveway? Also a cost in keeping the vehicle. Tolls you might have to pay?
There is a lot of debate in this arena because this is something that there isn’t really precedent for.
I do not believe any of those adjust your cost basis. Only thing I know of would be improvements to the assest(vehicle).
Well, on real estate investments, you can write off utilities you pay (gas), insurance, maintenance, costs that you incur to do any work, etc.
If we’re treating cars similarly, I don’t see why not. If you’re treating cars like a primary residence, then there would need to be a $$$ exemption similar to the first $250k of gain on a primary residence being tax free for a single person, $500k for a married couple.
You’re also talking about real estate you have purchased
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A vehicle is not a real estate investment. Also I think you are talking about yearly costs for maintaining a rental property vs a sale of an investment property for profit(capital gain). If you are flipping real estate and making improvements like new roof, new hvac, new flooring…those are all improvements to the property. Lease payments, gas, insurance, etc, are not deductions to cost basis for a vehicle. For example an antique car sold for cap gain. Any improvements to that vehicle including restoration expenses will adjust your cost basis. You don’t add up all the times you put fuel in it, that is just normal cost of ownership. Or lets say during your truck lease you added factory side steps, spray in bed liner, etc. Those would be considered improvements to the vehicle(asset) and would raise your cost basis.
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