Sale Of Collectible Auto

[TAXNJ]

If bought a old car for $10,000 7 years ago and put $5,000 in repairs and is offered $45,000 for the auto

What is the taxable event and how reported per advice from The TAXBOOK

thanks in advance

[Zee]

I asked a similar question in a recent post, and would suggest following the special capital gains treatment for a collectible which is 28% or the highest marginal tax bracket of the taxpayer (whichever is less). IMHO, a repair is a repair and should not be capitalized. I would add to the cost basis only improvements. Your client most likely won't like the collectible treatment so you should probably be prepared to show him a cite.

[winnie]

Repair or capitalize

I think we need more information before deciding about the repairs. I would want to know more about that. My husband plays with older autos and there is a lot of work that could be capital. Seats completely recovered, engine replacements, rebuilds, etc. If I could just get him to sell them....

[Zee]

Of course, my comment assumed the poster understood the difference between a repair and capital improvement. Those owning a classic/collector car can certainly capitalize improvements, but should be very careful on deciding which expenditure is an improvement vs a repair.

[JON]

If it is a collectable

anything you spend on it specifically is captilized. Repairs are added to the basis.

[Zee]

anything you spend on it specifically is capitalized. Repairs are added to the basis.

That's news to me. Please provide a cite.

In many cases, collector's restore cars and drive them many years before selling them. It seems doubtful to me that repairs from personal usage would be capitalized, or expensed since they would represent a personal expense.

[JON]

Collectable

means you do not take it for casual drives to get to work. If it is 2004 Chevy your repairing that is not collectable. If you are using it for your main transportion source-it is not a collectable-yet, you are depreciating it. If you buy it for $15000 spend $4,500 plus your time to get it ready and sell it for $40,000. Cars depreciate, collectables appreciate, unless you abuse them.

[Zee]

means you do not take it for casual drives to get to work. If it is 2004 Chevy your repairing that is not collectable. If you are using it for your main transportion source-it is not a collectable-yet, you are depreciating it. If you buy it for $15000 spend $4,500 plus your time to get it ready and sell it for $40,000. Cars depreciate, collectables appreciate, unless you abuse them.

I disagree. A collectible does not necessarily mean you don't use the vehicle for personal use. Often, collector's restore their cars and then drive them in parades, collector car events, etc. for many years. It's a hobby for them. When the get an offer they can't refuse, they sell the car. The repairs & expenses related to getting to/from collector car events and other personal usage would not be capitalized or expensed and do not necessarily add value to the vehicles. Your earlier post indicated that anything you spend on a collectible car is capitalized. I don't believe that's correct, and haven't read anything that defines a collectible auto as one you don't drive back and forth to work. Jon, I'm not trying to give you a hard time. I have a client in this situation, and haven't read anything that supports your opinion.

[TAXNJ]

Thank All Of You

Thanks for all the response

It seems to boil down to 28% possible capital gain on "collectibles".

Client lucked out by buying vehicle - not driving it but getting it fixed up and found a willing buyer for more than double what he purchased it for

[Zee]

Zee

You stated they drive them in parades and put them in shows. A lot of times these are the only miles put on these cars. I think the question as stated was it was purchased for 10k and 5k was spent on the vehicle. Sounds to me like they spent 5k restoring which would be added to the basis.

My next door neighbor has a 67 vette and a 69 chevelle SS. He drives them quite a bit in the summer. When he puts tires and brakes on these vehicles it would not be added to the basis because he is repairing his own wear and tear on the vehicle. That is the difference.

I think we're beating a dead horse here a bit, but driving cars to shows and in parades over several years of ownership doesn't always amount to little miles. Some trips are long distance. I think the very serious collectors, would tow the collectible car on a trailer. Other, more casual hobbyist's drive them considerably more. So, there are lots of variables to look at to determine what constitutes personal use and what doesn't in the case of collectibles. Let's assume Joe Schow buys a collectible, completely restores it and drives it to shows etc during the next 5-6 years putting say 15,000 miles on the vehicle. My point is the repairs during that 15,000 miles are personal in nature and shouldn't be capitalized, or expensed. I have a 1990 vehicle that is close to being considered a collectible. I've driven it about 2500 miles annually since I owned it. I've had numerous repairs. I don't think those repairs should be added to the basis when I sell the car, the expenses were personal and really didn't add any value. They just returned it to the condition before the repair. The added value is scarcity as it ages.

[Roland Slugg]

A collectible?

The term "collectible" is defined in Code §408(m), and in my opinion an old car ... even a vintage one ... does not fall within the definition. Some might argue that it's covered by the word "antique," but I don't think so. Antiques are items that (sometimes) increase in value via nothing more than the passage of time, if the condition is preserved. In the case at hand, however, the T/P created all or most of the increased value by: (1) restoration and repairs (all of which I would recommend be capitalized); (2) a smart/lucky purchase; and (3) sweat equity. (The original post doesn't mention (2) or (3), but are noted here as likely possibilities.)

Code §408(m) gives the IRS authority to add "other personal property" to the definition of collectibles, but to date it has not expanded on the basic list. IMO the gain on sale of the vehicle qualifies as a "normal" LTCG.

[Zee]

OK. Now, we have disagreement whether a classic automobile is a "collectible", or not. You'd think there must have been a tax court case, wouldn't you? Maybe someone can find a case, and help settle this?