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When I was in high school, my father-having just had a heart attack-gifted me a classic automobile. This year, he passed away and I ended up selling the car. (The car has been in my name now for roughly ten years.) It sold for $22,000. My question is the following: how does this affect me for taxes early next year? A friend of mine said it should have no effect since my adjusted gross income is under $20,000. That is, I won't pay much on capital gains with an income so low. Can anybody confirm and/or explain this situation a bit further? Thank you! I live in PA.

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I'm guessing PA means the Commonwealth of Pennsylvania.

In the US, it may so be that your classic automobile is considered a collectible. Long term gain on sale of collectibles is taxed at the maximum 28% rate (see here for the IRS tax topic on this). This is regardless of your AGI. The 0% long term capital gain rate doesn't apply to collectibles.

The distinction between regular and collectible long term gains goes on your schedule D and form 8949 where you mark this sale with code "C" (see instructions here).

You need to figure out what was the adjusted basis of the car to your father when it was gifted to you, as you only pay taxes on the gain, not your father's investment into the car (buying, repairing, rebuilding, painting, maintaining, etc).

I think your father should have filed a gift tax return for this gift where the adjusted basis and the gift tax paid (which is added to your basis) would be reported, but if he didn't - you'll have to somehow figure it out (with sufficient documentation to show the IRS, of course, not just make a number up).

If your car is not classified as a collectible, you'll pay the regular long term capital gains tax, which at the lowest bracket is indeed 0%.

Consult with a tax adviser (EA/CPA licensed in your state) about your specific situation.

  • Thank you for the advice. I have absolutely no idea about the value of the car when it was sold to me. I was a kid. Moreover, I have zero documentation. What do you suggest I do? Thanks. – 36olds Dec 15 '13 at 5:59
  • @36olds check your father's old documents and see if there's a gift tax lying around somewhere. Talk to his then-tax adviser or tax preparer who might know anything for that time. If not - check with your local classic cars' club about how to figure out the value retroactively, these people usually keep tabs on values of classic cars and can tell you how to figure it out. – littleadv Dec 15 '13 at 6:01
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    So why did you sell it for such a low price? Is that person related to you in any way? It may be considered a gift... – littleadv Dec 15 '13 at 6:10
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    @littleadv - a gifted item doesn't get a basis bump. I gift you a stock I bought for $5000. It's worth $10,000 when I gifted it, but now worth $20K. Your basis? My same $5000. Not $10k. – JoeTaxpayer Dec 15 '13 at 12:35
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    Well, I searched the few documents that we didn't throw out after his death and found nothing. To answer your question, I don't know if I purchased or it was gifted. Like I mentioned, I was in high school. I remember going to some office to transfer the title. Maybe I purchased it for some very low price. I am not sure. My dad restored the car and probably put $20000 into it. But that was obviously his money, not mine. Let me get straight though: if I walk in there with no documentation, I get taxed about $6000? That's the worst case scenario, right? It won't be over 28%? – 36olds Dec 15 '13 at 13:16

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