Is sale of an inherited automobile a capital loss?

[Husker]

My client inherited a automobile worth $10,000 she sold it to the deceased's son for $1200. She thinks she has an $8800 capital loss. Can the sale of an inherited car be considered a capital loss?

[TaxGuyBill]

If it is sold to a unrelated party and the vehicle was never used for personal use, it should be a deductible loss.

If either of those are not true, the loss is non-deductible.

[Burke]

Maybe, but it doesn't sound like an arms-length transaction if she sold it for $1,200 and it was ACTUALLY worth $10K. And to a related party, no less -- sale may be legitimate but not a "loss."
More a gift.

[TAX4US]

I would agree with Burke on this one. Maybe FMV was overstated.

[Husker]

Thanks for your help,

My client is the long time girlfriend of the deceased. They did not live together. FMV is accurate. The purchaser is the deceased's son. Not related to my client. The question then is 'is this an arm's length transaction?' Based on the difference between FMV and the sales price, would the IRS say they are related parties?

[S T]

Question - Inherited Party receives the vehicle via Trust/Estate/Will - Would this not be a Personal Use Vehicle in the hands of the Inherited Party Did the Inherited party use the vehicle for business?

Second Question - Does the deceased son qualify as a "related party" transaction?

Sandy

[Burke]

If FMV can be documented at $10K, then this is a bargain sale. She has a sale of $1,200 and a non-deductible gift (in this case since he is not a charity) for $8,800.

[TaxGuyBill]

I withdraw may original statement that it is deductible, and I agree with Burke. I forgot about the "arms length transaction".

[New York Enrolled Agent]

. FMV is accurate.

Assuming arguendo the FMV = $10K, why would your client sell it for $1,200?

FMV is the value a willing buyer would pay a willing seller.

Either Burke is 100% correct or the FMV is only $1,200.

[taxea]

Is this personal loss deductible is the question. I say no. Why would she sell a 10K vehicle for 1200 if it is worth 10K? If she chose to sell low because of who she was selling it to then I still say no.

[Husker]

Excellent Discussion Everyone

Thanks for helping me talk through the issues. I appreciate the help.

[JON]

Personal property

you never get a deductible loss. You only can have taxable gains. I do not think you have to go any further than that.

[Burke]

The reason this became an issue for discussion is that it was inherited property, which can be classified as investment property under the right circumstances and eligible for loss treatment. In this case, it did not fly.

[taxea]

The reason this became an issue for discussion is that it was inherited property, which can be classified as investment property under the right circumstances and eligible for loss treatment. In this case, it did not fly.

I would think an apprasial would be required to prove the value and then the girlfriend of the would have to prove that the vehicle is an investment. Were it a classic car the value would be way higher. What does it take to prove this was an investment rather than just a used car?

[Burke]

What does it take to prove this was an investment rather than just a used car?

1. She would have to refrain from any personal use of the car;
2. Sell it to an arms-length buyer for FMV or close to it;
3. Document its value via Kelly Blue Book or other method.