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.
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.