Tax consequences of buyback?

Just sold back our '11 Golf TDI. The buyback representative suggested we speak with a tax lawyer on how to claim the $5771.73 restitution payment. So is this Capital Gains, income, how does it get categorized on taxes? Did anyone bother filing this money on their taxes?

VW does not differentiate between the vehicle value and the restitution amount in the buyback payment.

It's very simple - if your basis in the vehicle is greater than the buyback payment, you do not owe taxes.

If your basis is less than the payment, the excess is taxable as capital gains. Short term if you owned the car for a year or less, long term if a year or more.

I am not a tax guy, so if this is capital gains, is it like capitol gains on real-estate. If you sell your home for more than you purchased it for, but then purchased a more expensive home after the sale of the 1st home. No capitol gains is due. So if you purchase a new vehicle that costs more than what VW gave you on the sell back, is no tax due? From what I understand from talking with the VW lawyers last year, VW is not reporting what they are giving us for our VW's to the IRS. I am sure they are writing off something though.

The last thing I would be concerned about is taxes. It is unlikely that more than a very small percentage actually show a real gain on this transaction and likely that almost no one who did will document it.

I am shocked that they told you this... unless of course you asked.

I wouldn't worry about it, unless you know you are getting audited.

Mark_J said:

I am not a tax guy, so if this is capital gains, is it like capitol gains on real-estate. If you sell your home for more than you purchased it for, but then purchased a more expensive home after the sale of the 1st home. No capitol gains is due. So if you purchase a new vehicle that costs more than what VW gave you on the sell back, is no tax due? From what I understand from talking with the VW lawyers last year, VW is not reporting what they are giving us for our VW's to the IRS. I am sure they are writing off something though.

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Houses are not the same as cars under the tax code. What you said is mostly correct regarding houses for personal use.

For cars, your basis is what matters. Some examples:

If you bought a TDI for $20k in 2011 and VW is giving you $25k, you owe long term capital gains (owned for >1 year) on that $5k, assuming you didn't make any improvements to the car (maintenance is not an improvement). Long term capital gains varies from 0% to 20%, depending on your tax bracket.

If you bought a TDI for $20k in 2017 and VW is giving you $25k, you owe short term capital gains (owned for <1 year) on that $5k. Short term capital gains = income, so you are taxed at the same rate as the rest of your income (10% to 39.6%).

If you bought a TDI for $20k in any year and VW is giving you $19k, you owe nothing.

And yes, you can simply not report, as VW is not reporting these payments to the IRS. If you are audited and caught, you will pay back taxes and massive fines. If you sell 1 or 2 personal vehicles, you're probably fine. As someone doing this as a business, I have reported all profits.

Mark_J said:

I am not a tax guy, so if this is capital gains, is it like capitol gains on real-estate.

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Real estate (specifically, your home--other real property doesn't count) has some special rules in place that used to be as you describe, but those rules don't apply to any other type of property. No, VW isn't reporting anything as far as payments to owners are concerned, but that doesn't have anything to do with whether they're taxable.

One more good reason to do the emission modification

Modification = $6,701.53

BOSCH = $350

Plus NOT needing to buy a new replacement car TT&L = $1,000-ish

$8051.53-ish

No worries, Tax free

_______________________

Then there is this value of the 11 year, 162,000 mile warranty ~~ which I personally value at $3,000

GAD

I doubt if any of us will receive a 1099 form from VW. But now I have to visit the DMV and explain that I haven't owned my TDI since January 30th. I received my registration renewal yesterday for a car that is most likely crushed by now.

TDILeo said:

I doubt if any of us will receive a 1099 form from VW. But now I have to visit the DMV and explain that I haven't owned my TDI since January 30th. I received my registration renewal yesterday for a car that is most likely crushed by now.

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Okies can file a paper with the DMV stating they do not own the car.

However there is a $10 fee ---

TDILeo said:

I doubt if any of us will receive a 1099 form from VW.

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There's no reason to guess or doubt; it isn't happening. Plenty of us sold back cars before the end of last year, and there are no 1099s.

Fourplay said:

If you sell 1 or 2 personal vehicles, you're probably fine. As someone doing this as a business, I have reported all profits.

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There is concise wisdom in this quote ^^

Below is from IRS Publication 550,
https://www.irs.gov/publications/p550/ch04.html#en_US_2016_publink100010478

Capital Assets and Noncapital Assets

For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Some examples are:

• Stocks or bonds held in your personal account;
• A house owned and used by you and your family;
• Household furnishings;
• A car used for pleasure or commuting <end quote>

Personal use property. Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. However, you cannot deduct a loss from selling personal use property. <end quote>

So, according to the tax code, even a $100 gain on one car is taxable. Ten cars flipped for $100k profit would certainly be taxable.

If you are audited, will you be massively fined or imprisoned for not reporting a gain on one car? I suspect not. But be aware you are not abiding by the law.

Should flippers think twice about not declaring their gains? I think so. Also, there is no limit to the number of years the IRS can look back if they suspect or discover tax fraud. Forever is a long time to be looking over your shoulder.

Not trying to scare anyone. I just personally never want to be on the wrong side of the IRS, and knowledge is power.

^^^^^^^^^^^

IMO

The staff of gov (IRS) members lean left ~~ as in greens ~~ as a "group set."

IMO

If a "flipper" came on their screen, ~~ Katie bar the door.

This topic of tax liability cries out for a sticky. There isn't really much to know here, and it's been stated over and over by knowledgeable folk:

1. There is no tax liability unless the buyback amount exceeds the cost basis in the car.

2. There have been no 1099s issued by VW, nor is there the slightest reason to anticipate that they will send any.

3. Tax liability is in no way eliminated by the fact that no 1099 is issued or received.

It is therefore blindingly obvious from this what any prudent person would do. Of course, there are always going to be people who will try to game the system, but no matter the hand one holds, the IRS always has the trump cards.

TDILeo said:

I doubt if any of us will receive a 1099 form from VW. But now I have to visit the DMV and explain that I haven't owned my TDI since January 30th. I received my registration renewal yesterday for a car that is most likely crushed by now.

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I sincerly doubt it is crushed yet, unless the condition is beyond redemption.

Rico567 said:

This topic of tax liability cries out for a sticky. There isn't really much to know here, and it's been stated over and over by knowledgeable folk:

1. There is no tax liability unless the buyback amount exceeds the cost basis in the car.


2. There have been no 1099s issued by VW, nor is there the slightest reason to anticipate that they will send any.


3. Tax liability is in no way eliminated by the fact that no 1099 is issued or received.


It is therefore blindingly obvious from this what any prudent person would do.


Of course, there are always going to be people who will try to game the system, but no matter the hand one holds, the IRS always has the trump cards.

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If the IRS says you owe it -- you owe it

But,


Bundling "cheaters" along with persons who file tax forms "incorrectly" is a reach. IMO there are few persons on earth who really understand IRS tax law

My only opinion about persons who did multiple buys and sells back to VW (like 20 units)were in fact schedule C filers. Or should be.

2015vwgolfdiesel said:

If the IRS says you owe it -- you owe it

But,


Bundling "cheaters" along with persons who file tax forms "incorrectly" is a reach. IMO there are few persons on earth who really understand IRS tax law

My only opinion about persons who did multiple buys and sells back to VW (like 20 units)were in fact schedule C filers. Or should be.

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If they established a business to do it through, then yes, they would be. If they've done it without establishing a business, it would be capital gains on Schedule D.

BLyons said:

If they established a business to do it through, then yes, they would be. If they've done it without establishing a business, it would be capital gains on Schedule D.

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I stand corrected