We have a rare classic car, bought new in 1969, for around 5K. We've recently (partially) restored the car, spending around 5K. Because of the rarity of the car, we expect it to sell for over 200K. Our adjusted gross income is less than $60,000. What would be the tax liability in Indiana? And, is there a way to protect the income, or reduce the tax on the proceeds? - Thank you
If the numbers are somewhat near correct, I think this would justify spending some money on good accounting advice.
In the general sense you will have to claim any profit as income from the sale of an asset. Costs can be deducted from proceeds to arrive at the profit figure, and a good accountant will point out which costs are allowed and which are not.
One example you may not be tracking are auction fees. I would assume that you will sell this car in an auction and any fees for transportation, and paid to the auction house are probably deductible and will reduce your tax liability. What else is deductible? A good accountant will tell you.
The sale of a collectible item does produce long term capital gains that must be included in your annual income to the extent the adjusted selling price (gross selling price minus any costs of selling it) exceeds the adjusted basis, where adjusted basis is your original purchase price plus any capital improvements such as a new paint job, new motor, rebuilt transmission and so forth. Note, maintenance costs do not adjust basis.
Collectible long term capital gains are taxed at the lower of 28% or your marginal tax bracket. It sounds like you now in the 15% bracket now, but with the addition of this car sale likely putting you into the 28% bracket. I don't know how IN treats capital gains, but most states treat them as ordinary income.
With this much $$, it would be a good idea to make an appointment with a CPA who has handled collectible sales in the past.
According to TurboTax, yes. If you are making a profit then you will have to report it to the IRS.
I do not believe there is a way to reduce the taxes or protect it. If there is a paper trail, assume the government will know about it.
Disclaimer: I am not an attorney or an accountant. The best advice and answer you can receive will be from an accountant (preferably one that holds a CPA license).