MA, USA
So I got my car at the start of this year but I did not pay for it, I inherited/was gifted the car from a family member as such I didn't pay for the car. I am now selling the car to a dealership such as Carmax.
From what I understand is that if I purchased the car and then sold the car under the purchase price I wouldn't be taxed since I got less than I originally paid, however in my case I paid $0 for the car, so will I be taxed on the price it's purchased for as capital gains?
Posted by MrVarlet
4 Comments
No one is taxing your car. Even if it was a gift to you. Only exception would be a car that appreciated. Like a collectors car.
Your price of the car for income tax purposes is whatever the person who gave it to you paid for it.
Unless you sell it for more than they paid for it, there won’t be any taxes.
The concept you are trying to understand is basis. The starting point for basis is generally what someone paid for the property. Inherited and gifted are two very different things from a tax standpoint. But either way, basis in inherited or gifted property is usually not going to be zero.
If you inherit something, your basis in that property is the fair market value of the property on the decedent’s date of death. If someone gives you a gift, your basis in that property carries over from them to you (but for purposes of determining loss, it is the lesser of their basis or the fair market value on the date of death).
For your typical car, it doesn’t matter, because cars generally depreciate, not grow in value. So whether your basis is fair market value on date of death or carryover, you aren’t going to have any gain to tax.
Zero tax