Tax on buyback amount?

I just read on some internet thread that someone expected to be taxed 8 grand on a 30,000 buyback amount. Will this money be counted as income? Because, for me, I basically get back what I spent already - i.e., its basically reimbursement.

Money above your cost basis is taxable. In theory if you fully expensed your car for biz purposes you could have a big tax bill. Otherwise the $8000 number is incorrect.

This has already been dealt with numerous times. If you buy a lawnmower, use it, and then sell it, it's not income, therefore there are no taxes due unless you somehow get more than you paid. There are evidently a minority of Dieselgatemobile owners to whom this could apply, as cited above. And it's also possible that someone who got a really good buy on their car could make a bit more, but I anticipate that's pretty exceptional.

NB: This is another example of one of the diseases of the Internet, where half-truths and sometimes outright howlers refuse to die, don't get deleted even when corrected, then someone else reads it and.....instant new thread perpetuating it!

BuyMeBackSoon said:

Money above your cost basis is taxable. In theory if you fully expensed your car for biz purposes you could have a big tax bill. Otherwise the $8000 number is incorrect.

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Yup. For this reason...I'm not sure why some people are clamoring for significantly more on the buyback. A few hundred or maybe a thousand more? Sure...why not, but another $3,000, $5,000, etc. more than what most people are projected to get...that's just going to put a lot of people well above what they paid and result in them having to pay a chunk of that additional money to the government. For that reason, I would be content with them leaving the buyback amounts where they are.

bubbagumpshrimp said:

Yup. For this reason...I'm not sure why some people are clamoring for significantly more on the buyback. A few hundred or maybe a thousand more? Sure...why not, but another $3,000, $5,000, etc. more than what most people are projected to get...that's just going to put a lot of people well above what they paid and result in them having to pay a chunk of that additional money to the government. For that reason, I would be content with them leaving the buyback amounts where they are.

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This is just wrong-headed. By this logic you don't want to be given a raise at work because you will be taxed more.


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Buymebacksoon is correct on Federal taxes. But state rules vary. Some make no sense, so YMMV.

So let's throw a wrinkle into the works. For buyback, BuyMeBackSoon has the correct answer. What about if someone gets the fix? They still own the car, so there isn't a sale on which to have a gain or loss. There's just a cash payment.

Or the Eligible Seller restitution?

Note that I'm asking, not suggesting. I'm not saying anything is taxable. But I don't remember seeing an answer to this, and the answer isn't obvious to me (as an attorney who's moderately familiar with tax issues, though that isn't my normal area of practice).

I believe that money paid for damages is not taxable income. The whole issue of taxability is only an issue if VW sent you a 1099 form. Otherwise, drive more and worry less.

The buyback amount consists of the trade-in amount and the restitution. The trade-in portion is taxable if it's more than cost of the vehicle. The restitution portion is taxable. I expect VW to issue the 1099 for the restitution.


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Armby said:

This is just wrong-headed. By this logic you don't want to be given a raise at work because you will be taxed more.


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Not really. In that situation, you just increase your 401k contribution so that the difference goes into your retirement account. Not that many people have their 401k contribution maxed out and would be unable to do that.

BlueGruff said:

The buyback amount consists of the trade-in amount and the restitution. The trade-in portion is taxable if it's more than cost of the vehicle. The restitution portion is taxable. I expect VW to issue the 1099 for the restitution.


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I was going to say "no" but after reading the below I think it may very well be taxable.

http://www.forbes.com/2010/04/29/ta...ment-injury-personal-finance-robert-wood.html

BlueGruff said:

The buyback amount consists of the trade-in amount and the restitution. The trade-in portion is taxable if it's more than cost of the vehicle. The restitution portion is taxable. I expect VW to issue the 1099 for the restitution.

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I am a Canadian. What do I know about US taxes, but ignorance allows me to say that the restitution portion is a reimbursement of your "damages" and therefore not taxable.

Armby said:

I am a Canadian. What do I know about US taxes, but ignorance allows me to say that the restitution portion is a reimbursement of your "damages" and therefore not taxable.

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what he said ....

http://m.sfgate.com/business/networ...ivers-should-know-about-the-giant-8330447.php

This article says...
"Cabraser said they are intended to be nontaxable, but people who receive payments should consult their tax advisers.

Taxable or not

In general, “any settlement you get for something other than personal physical injury or sickness is taxable,” said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting. Most other settlements, such as for back pay and punitive damages, are taxable.

In the case of property, if the settlement merely restores your original value, it’s not taxable, but if it enriches you beyond where you were before, it is taxable, he said.



Theoretically, owners who sold their cars back would not owe tax if the combined payment (trade-in plus cash payment) was less than their basis, which is generally what they paid for the car (or the depreciated basis if they used it in a business). If it was more than their basis, they could owe tax on the excess.

If they kept the car and got it fixed, the cash payment likely would not be taxable if the payment is designed to compensate them for lost value.

If they leased the car, the payment could be taxable because “they had no basis” in the car, according to Luscombe."


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Armby and South Coast Guy are both wrong, which is just one of the many reasons you shouldn't make a factual claim about something you don't actually know. At least Armby said he didn't know anything about it but whatever I guess.

This might be a twist for the folks out there buying up tdi cars at low prices. They may be in for a surprise. I know from looking at the buyback sheets and the prices cars are being purchased at, there will be profits. Based on above comments, those are going to be taxable. There will be some profit still, but possibly much less than many expected once you also factor in insurance, registration costs and (possibly) other.

BlueGruff said:

The buyback amount consists of the trade-in amount and the restitution. The trade-in portion is taxable if it's more than cost of the vehicle. The restitution portion is taxable. I expect VW to issue the 1099 for the restitution.


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You are basing this assumption on????

This has to be one of the most ridiculous threads I've ever read. In order for there to be a "profit" on this you also need to factor in interest, property taxes, licensing, inspections, maintenance, etc....... Your basis is far higher than what you paid for the car.

On top of that, this is restitution. Only tax consequences I can foresee would be if a business had a tdi on its books. Either taking the restitution or a buyback would be a taxable event.

For the average joe, not so much.

Why comment on a ridiculous thread? The expenses you listed are normally deducted as expense and do not add to cost basis. But you are correct that most people can zoom past this topic as n/a.

BuyMeBackSoon said:

Why comment on a ridiculous thread? The expenses you listed are normally deducted as expense and do not add to cost basis. But you are correct that most people can zoom past this topic as n/a.

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For a business I agree with what you say, for a person IF this ever were considered a taxable event then these costs would be added to the basis. The costs weren't expensed.

A business would take these as ordinary expenses, thus they couldn't be added to the basis.

I had to reply to this ridiculous comment on my post

BuyMeBackSoon said:

Money above your cost basis is taxable. In theory if you fully expensed your car for biz purposes you could have a big tax bill. Otherwise the $8000 number is incorrect.

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Yes, but see the following:
https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031

jjk58 said:

This might be a twist for the folks out there buying up tdi cars at low prices. They may be in for a surprise. I know from looking at the buyback sheets and the prices cars are being purchased at, there will be profits. Based on above comments, those are going to be taxable. There will be some profit still, but possibly much less than many expected once you also factor in insurance, registration costs and (possibly) other.

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I would think any profits made after paying tax, title, registration, insurance would be considered short term capital gains and taxed at your ordinary rate. For most people playing that game it's 25% to 28%.

nicklockard said:

I would think any profits made after paying tax, title, registration, insurance would be considered short term capital gains and taxed at your ordinary rate. For most people playing that game it's 25% to 28%.

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Just hold the car for year. Then the profit is a long term capital gain. Much better tax rate.

Since there are so many experts here on tax law, who frankly don't know what the F they're talking about, maybe some of you can give us instructions on the the exact procedures involved in landing the Space Shuttle, another subject where you don't know what the F you're talking about.

Any amount received above your cost basis will generally be taxable as a capital gain, whether used in business or not. If used in business, it could be ordinary income under certain circumstances. However, if part of the excess reimbursement is considered "damages", it's going to depend on how the IRS views these damages. I think it would be viewed as damages for economic loss and therefore not taxable. It may also be deemed to be a reduction in your purchase price. That's a very brief summary of the tax issues involved here.

Since the US Govt is highly involved in this settlement, it's likely that the IRS will issue guidance on the treatment of these payments.

The taxability does not depend on whether VW sends you a 1099.

nicklockard said:

tax, title, registration, insurance

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These do not add to your cost basis.

DieselMann99 said:

...However, if part of the excess reimbursement is considered "damages", it's going to depend on how the IRS views these damages. I think it would be viewed as damages for economic loss and therefore not taxable. It may also be deemed to be a reduction in your purchase price. That's a very brief summary of the tax issues involved here.

Since the US Govt is highly involved in this settlement, it's likely that the IRS will issue guidance on the treatment of these payments.

The taxability does not depend on whether VW sends you a 1099.

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The penalty part of the payment could also be viewed as damages for breach of contract, which would be taxable as ordinary income.
Totally agree, no use worrying about it now... just need to wait and see what the IRS rules.

spheniscus said:

The penalty part of the payment could also be viewed as damages for breach of contract, which would be taxable as ordinary income.
Totally agree, no use worrying about it now... just need to wait and see what the IRS rules.

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Good point. And since the IRS is as arbitrary as any other government agency. it would be nice to know how many top IRS officials drive TDI's. If there are some, we're golden. If not....

spheniscus said:

The penalty part of the payment could also be viewed as damages for breach of contract, which would be taxable as ordinary income.

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It's not really a breach of contract action, it's a fraud case, and the fraud is really against the EPA, not against the VW owner.