Federal Income Tax

If you received a payment following the fix $5,100.00, is this taxable on your 2017 taxes?

You received a settlement. It is not taxable.

Honestly, 99% of people are not reporting it.

VW is NOT sending out 1099s to anyone. IFFF you get audited one day, this was a settlement, not income. Plus $5K unreported is not going to be any more than a tap on the wrist from IRS at worst case scenario.

PS: I am not a lawyer or CPA.

Per my wife the tax preparer - Settlements are not taxable as income unless lost wages was part of the settlement.

Keith63 said:

If you received a payment following the fix $5,100.00, is this taxable on your 2017 taxes?

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The answers you got are correct, but IF you use the car in part for business and deduct expenses and depreciate the vehicle, the business % of the $5,100 should be reported.

TDIforDays said:

VW is NOT sending out 1099s to anyone.

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This is an important observation. If VW is not sending a 1099 to you - they are also not sending a 1099 to the IRS. As stated above, it is a settlement.

Have Fun!

Don

JSWTDI09 said:

This is an important observation. If VW is not sending a 1099 to you - they are also not sending a 1099 to the IRS. As stated above, it is a settlement.

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Whether you get, or not get, a Form 1099 is not what determines the tax consequences.

DieselMann99 said:

Whether you get, or not get, a Form 1099 is not what determines the tax consequences.

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Quite true. The point was that the IRS does not know that you received the payment. This means that if you decide (or learn) that it is taxable income that should be reported, it is up to you to report it.

Also, the very fact that VW has not sent out 1099s does sort of imply that their lawyers believe that they do not have to send them out. I do not think that VWoA wants to get into any more trouble with the American legal system. First cheat the EPA and then cheat the IRS? I doubt it.

However, anyone who wants to can feel free to claim it as income if it makes them happier.

Have Fun!

Don

JSWTDI09 said:

Quite true. The point was that the IRS does not know that you received the payment. This means that if you decide (or learn) that it is taxable income that should be reported, it is up to you to report it.

Also, the very fact that VW has not sent out 1099s does sort of imply that their lawyers believe that they do not have to send them out. I do not think that VWoA wants to get into any more trouble with the American legal system. First cheat the EPA and then cheat the IRS? I doubt it.

However, anyone who wants to can feel free to claim it as income if it makes them happier.

Have Fun!

Don

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VW didn't distribute 1099s because it would have added a layer of complexity and because 99% of claims were made by owners, not flippers.

The general assumption on VW's part is that most everyone had a negative basis in the car. For example, if you bought a TDI in 2010 for $23k and got $14k in the settlement, you had a negative basis, so there are no tax consequences.

But, for us flippers, there is a positive basis, so technically the difference between purchase price and buyback is taxable, either as income (car held for <1 year) or capital gains (car held >1 year).

scooperhsd said:

Per my wife the tax preparer - Settlements are not taxable as income unless lost wages was part of the settlement.

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Unfortunately, this is not accurate. Only damages for personal injury are not taxed. Since VW didn't cause physical harm to your person, the settlement benefits are taxable if they exceed your basis in the vehicle.

DennisMitchell said:

You received a settlement. It is not taxable.

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Not true. See above.

This issue has already been discussed quite a bit in a number of other threads. One cannot be taxed for a car that's turned in, it's similar to selling a used car or any other property owned (except this one is probably closer in value to what was paid). But unless the amount is more than what was paid (the "basis" mentioned in the previous posts), nothing is owed.
Other discussions weren't quite as certain about the settlement for the fix, but the general opinion (and there were some pretty legally savvy people in these discussions) was that the IRS wasn't owed anything.

NB: None of the above relates in any way to the people who have been engaging in a brisk trade of buying multiple TDIs and turning them in for a profit. They're running a business, and most certainly owe taxes on those profits.

I would tend to agree with Mr. Rico. It sounds common sense.

JSWTDI09 said:

Quite true. The point was that the IRS does not know that you received the payment. This means that if you decide (or learn) that it is taxable income that should be reported, it is up to you to report it.

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You can say that about a lot of receipts of money.

Also, the very fact that VW has not sent out 1099s does sort of imply that their lawyers believe that they do not have to send them out.

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There are regs in place that spell out when a 1099 is required to be issued. There are laws in place (i.e., the Internal Revenue Code) that spell out when income is taxable. The two things are very different.

Depending on one's particular circumstances, the payment received on a BB could be fully or partially taxable, or not taxable at all.

DieselMann99 said:

Depending on one's particular circumstances, the payment received on a BB could be fully or partially taxable, or not taxable at all.

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You will get no argument from me on this point.
Far be it from me to argue with the obvious.

Have Fun!

Don

JSWTDI09 said:

You will get no argument from me on this point.
Far be it from me to argue with the obvious.

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Some people seem to think it's "obvious" that it's tax free. It isn't so obvious. It depends.

DieselMann99 said:

Some people seem to think it's "obvious" that it's tax free. It isn't so obvious. It depends.

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For the average owner, turning in their daily driver - it is tax free. This probably accounts for 95% or more of TDI owners and members here. Yes, there are exceptions, and for those people, I have no advice other than to consult an expert.

Have Fun!

Don

JSWTDI09 said:

For the average owner, turning in their daily driver - it is tax free. This probably accounts for 95% or more of TDI owners and members here. Yes, there are exceptions, and for those people, I have no advice other than to consult an expert.

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I don't think it's anywhere near 95%. A lot of people use a car for business and take a deduction for the business use % on their taxes. Those people might find some of the BB $ is taxable. A lot more than 5% of the population are in that situation.

Don't want to beat a dead horse here, Don, but I think you're oversimplifying it.