Car Sale/Income Tax Question

[riverdance]

there are no INCOME tax issues when selling personal property (like a car that is not used for business purposes). INCOME tax for sales of business, investment, and real property only.

i'm surprised there was no SALES tax due when title was transferred. normally, the buyer owes SALES tax when a car is sold.

[squiffy]

I meant I think there is no sales tax if I give my girlfriend a $5,000 car, since there was no sale, only a gift.

Also, if I buy a car for $500 at an auction. Then sell it in the paper for $5,000. Why don't I owe a $4,500 income tax.

[riverdance]

[ QUOTE ]
I meant I think there is no sales tax if I give my girlfriend a $5,000 car, since there was no sale, only a gift. [ QUOTE ]


let's say i bought your car for 5000. i should owe SALES tax on that 5000. but if i convince you to write a letter that says you gave me the car, i would owe nothing? seems like every buyer would just say it was a gift (and the buyer would then give the seller, say, half of what it would have cost in SALES tax). you see the potential for tax evasion? that's why i thought it was strange your gf didn't owe SALES tax.


[ QUOTE ]
Also, if I buy a car for $500 at an auction. Then sell it in the paper for $5,000. Why don't I owe a $4,500 income tax.

[/ QUOTE ]

yes, you have then moved beyond using the car for personal use, and now are IN THE BUSINESS of re-selling cars. if you only did this once or twice, you could probably get away with it. but once it becomes more frequent, the irs is going to assume that you are buying the cars for INVESTMENT purposes.

[SurferEd]

I think the way they get dinged is when they register the car. The registration fee is based on the purchase price.

[WLVRYN]

I thought that there is an exemption for sales tax on non-normal course of business transactions. If you sell one car to someone, that would not be considered normal course of business, and thus no sales tax. Also, I'm pretty sure its the seller's responsibility to collect sales tax if it is due, not the buyer. If the seller doesnt collect it, it comes out of his pocket.