Hypothetical Tax Question - Is this legal?

[Shanemex]

Let's say I have a car that I paid $7500 for, but is only worth $2500 now. Could I sell a friend the car for $7500 without having to pay any extra taxes? I didn't make a profit on it, because I only get back as much as I paid.

[DespotInExile]

fine assuming u took no depreciation on your taxes

[riverdance]

as long as the car wasn't used for business purposes, you're fine. well, as fine as you can be while screwing over your friend

[IdealFugacity]

Do all cars have depreciation value on taxes? I was unaware of this. Do I need to itemize or something to get that?

(To be clear, I don't own my own business or anything like that, i'm just out of school, buying a car soon, and moving out of state to my new job)

[DespotInExile]

if the car was a business expense, then you could have taken a depreciation deduction against the business income. the capital gain on the asset is then a comparison to the depreciated basis. since you took no depreciation on the original asset, your original basis is cost. (there is no requirement under capital gains for you to use the lower of cost or market methodology.) if you sold the car for 10k, then you would need to report 2500 in long term capital gains (in theory).

[Shanemex]

Basically the reason I posted this was because I have a friend who owes me more money than he is able to pay, and I was trying to come up with a way to solve that by shifting my tax burden onto him, if I can do so legally.

I think I have come up with a better idea than this, since the previous idea needed quite a few other things to work, where this seems pretty straightforward. I make all of my income from gambling, and I do not file as a professional, so I just report my gambling winnings and losses and pay taxes accordingly. Now what if I make some ludicrous bets with my friend in which I am nearly guaranteed to lose $12,000, such as giving him 12000 - 1 odds on a coinflip. It's still gambling, so if I lose $12,000 I should be able to report it as gambling losses which I can use a deduction on my taxes. He then gives me a gift of $12,000 (which I believe is the maximum allowed exclusion prior to the gift tax). Then he will pay taxes on the $12,000 in gambling winnings, but because he is in a much lower tax bracket than I am, it will amount to a lot less in taxes.

Now I expect there to be some problem with this, because it just seems too easy. Would the fact that the bet is only taking place on the condition that the friend gift the money back to me somehow change the way gifts and gambling losses work on taxes? Is there some income based limit besides the $12,000 exclusion that would make the gift taxable? Basically, I am just simply wondering... is this legal?

[stinkypete]

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Basically, I am just simply wondering... is this legal?

[/ QUOTE ]

i don't know the law, but i can tell you with 99.99% certainty your coinflip scenario is not legal.

[Shanemex]

That's what I figure, but I just don't understand specifically why it would be illegal. Both actions independently seem like they should be legal. The bet would be real, no matter how stupid, and it should be legal to gift the money right back. Maybe I'm just incorrectly assuming there is no room for interpretation with taxes. So even if both parts of the plan were legal individually, then they would look at the motive behind why we did it instead. I'd still like to hear from anyone who could provide more insight though.

[stinkypete]

i'm sure there's some clause that makes deliberately violating the spirit of the law using outrageous technicalities illegal