What are the tax obligations when selling a car?
If you sell a vehicle (car, truck, motorcycle, boat, or other vehicle for personal use) for a loss, the IRS is generally not interested in the transaction. However, if you sold the car for a profit, you may be required to report that profit as a capital gain. The gain will be classified as either short term or long term, depending on how long you owned the vehicle.
An IRS Schedule D form is used to report your capital gains and includes worksheets to help you determine your adjusted cost basis, so you can properly report net gains or losses. If you put a lot of permanent work into improving the vehicle, you may be able to deduct some of those costs from the gain to help reduce your tax obligation. If you sell quite a few vehicles, the IRS may have reason to believe you are in the professional car sales business. Of course, if you are in the car sales business, correctly reporting your income taxes, capital gains taxes, and business taxes appropriately may be required to avoid issues with the IRS.
If figuring out how to report taxes after selling your car is overwhelming, you may want to consider asking for professional tax help.
Are taxes owed if I buy a car in a private sale?
When you purchase a vehicle through a private sale, the buyer is usually required to pay state and local taxes. In most states, buyers are required to bring a Bill of Sale, or proof of the purchase price, and a signed title document to the Department of Motor Vehicles (DMV) or motor vehicle registry agency to pay the taxes, change over the registration, and get a new title and license plates.
If you purchased a vehicle in another state, you may be required to pay the sales tax in that state. Keep the receipt, as you will likely need to bring proof of payment to your state’s DMV when you register the vehicle in your state. In most cases, that will fulfill your sales tax obligation, although you may be responsible for additional fees and taxes. If you do not bring sufficient documentation to prove you paid sales taxes in another state, the DMV may ask you to pay sales tax in your state at the time of registration.
What are my tax responsibilities if I sell my home privately?
Homes are considered an asset and you may have a rather large tax obligation if you sell your home for a gain. The rate of capital gains tax varies based on an individual or married couple’s income bracket. Fortunately, there is a capital gains tax exclusion of $250,000 for individuals or $500,000 for married taxpayers filing joint returns. This exemption is only available when selling a primary residence, and meeting other IRS requirements. Even if you did not sell your house for a gain, or you used all the money to pay off your mortgage, you are still obligated to report the transaction to the IRS.
If you sell your second home, rental property, or vacation home, there may be larger associated tax obligations. To learn more about the tax obligations of selling your home, see IRS Topic Number 701 – Sale of Your Home.
Do I need to pay sales tax on a house I buy using cash?
In most real estate transactions, regardless of how buyers pay, sellers pay the tax related to the sale, while buyers take on the tax obligation related to the property itself. Typically, home buyers do not pay sales tax like they would when buying goods online or at a retail store. Some states or local governments, however, may require an excise tax, or other tax be withheld from the purchase price, and paid by buyers.
If you inherit a home or buy a property using cash, often there may not be a sales tax obligation until you sell the property and realize a gain. But there may be other tax obligations, particularly when inheriting a home. You may want to ask a lawyer to find out what local or state obligations may apply to your situation. You may be obligated to pay any associated unpaid property taxes.
Do I need to pay taxes if I buy or sell other types of property?
In most cases, when you sell anything, the IRS and your local government agencies are interested in any capital gains you realize. Whether everyone claims or tracks them or not is suspect, but in the end, yes, your capital gains may be taxable. If you buy something and sell it for more than you paid originally, that is a gain.
In a sense, a private transaction is not much different than a retail store or pawn shop buying low and selling high in the eyes of the IRS. Like other assets, you may also be able to deduct capital losses you incur. So, realistically, unless you are buying or selling volumes of items, your tax obligation will likely be minimal.
If you have questions about your tax obligations after a private property sale, reach out to a Rocket Lawyer network attorney for affordable legal advice.If you need tax help, Rocket Lawyer can now match you with a tax pro for affordable and convenient tax filing services. Leave your taxes to a pro with Rocket Tax!
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
