Selling Old Car

[spartan7886]

I am in the market for a new car. I am trying to figure out the tax implications of selling my old car. I understand there is a sales tax advantage to trading my car in versus selling it privately, as the trade-in reduces the value that is subject to sales tax, right? I have also read that there is generally no income tax associated with selling a car, as most cars have depreciated since purchase. I was gifted my car after college, when it was worth probably $5000. It is now worth approximately $2000. Is my basis the worth of the car at the time of the gift, which would mean I have no income, or is it teh $0 I paid for it, which would mean I would have income? If the second, would this be affected by trading it in versus selling it privately? The car was purchased for private use, not business.

[mwcpa]

spartan....

"I understand there is a sales tax advantage to trading my car in versus selling it privately" ..... that depends on your states sales and use tax law....

" have also read that there is generally no income tax associated with selling a car, as most cars have depreciated since purchase".... generally, yes you have the proper understanding (unless you are in business of selling cars or the car was used for business)

"my basis the worth of the car at the time of the gift" ... no, when someone is gifted property the recipient steps into the shoes of the giver.... the cost to you is the cost of the donor..... but, if you are selling at a loss then the basis is the lesser of the cost or the FMV on the date of gift (to the extent of the selling price)....

maybe an example will help....

I am given Car A from my uncle, he paid 10,000 and it was worth 4,000 when he gave it to me, he never used it for business.

If I sell the car for 5,000 I have no gain, my "basis" is 5,000.
If I sell the car for 11,000 I have a gain of $1,000, my basis is 10,000.
If I sell the car for 1,000, I have no gain, my "basis" is 4,000.

Losses on the sale of "personal" assets, like a personal car are not deductible, but gains on the same are subject to tax.

[spartan7886]

Ok, since the car depreciated significantly over the course of the 10 years between my father's purchase of the car and my sale, there is no gain and therefore no effect on my income taxes. Thanks (and karma) for the help.