car income

[daisy]

This is something I've never heard talked about and never ran into it before. A client called me tonight to tell me he's selling his gas guzzling car for something that uses less gas. He asked about the money he makes from the sale of the first car, is it taxable? I said yes, because it's income and wouldn't see any reason why it shouldn't be. Then he asked if he traded it in at a dealership, rather than selling it himself, if he would have to claim that as income also, my answer was, I wouldn't see why not, even though he's not getting cash in his pocket, it would still be income.

Am I correct?

Daisy

[redux]

This is something I've never heard talked about and never ran into it before. A client called me tonight to tell me he's selling his gas guzzling car for something that uses less gas. He asked about the money he makes from the sale of the first car, is it taxable? I said yes, because it's income and wouldn't see any reason why it shouldn't be. Then he asked if he traded it in at a dealership, rather than selling it himself, if he would have to claim that as income also, my answer was, I wouldn't see why not, even though he's not getting cash in his pocket, it would still be income.

Am I correct?

Daisy

I guess I'm not understanding your question. Is the vehicle used in a business and has it been depreciated? Suppose it is a personal vehicle, and he paid $30,000 for it. If he sells it for $20,000, he has neither a gain nor can he claim a loss. If he sells it for $40,000 then he has taxable income.

[D Eckerman]

yes he has income but it is not taxable income - just return of money he already spent. The income would be taxable as only the amount of what he paid or was given a tax benefit - such as depreciation if used for business. If not business, it is personal and personal losses are just lost.

[daisy]

Thanks guys! I did know that, I don't know why I couldn't think it through correctly. Very rarely is there a gain on a sale/trade-in of a car. I guess my brain is just fried!

Daisy