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.
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.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.
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.
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.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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I was going to say "no" but after reading the below I think it may very well be taxable.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.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.
what he 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.
You are basing this assumption on????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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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.
Yes, but see the following: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.
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%.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.
Just hold the car for year. Then the profit is a long term capital gain. Much better tax rate.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%.
These do not add to your cost basis.tax, title, registration, insurance
The penalty part of the payment could also be viewed as damages for breach of contract, which would be taxable as ordinary income....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.
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....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.
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.The penalty part of the payment could also be viewed as damages for breach of contract, which would be taxable as ordinary income.