Buyback taxes

bockegg

Veteran Member
Joined
Apr 25, 2006
Location
PA
TDI
2009 Jetta Loyalty TDi w/ DSG
Surely there will be an accountant TDi owner that will know something on here about this. If someone accepts a buyback and will be given a check for their car.... A few questions here...
1. If he/she cashes the check then will they owe income tax on the sell back of the car?
2. If he/she signs the check over to another person or a dealership for a different car, then will they not have to pay income tax on the buyback money?
3. Would it be better to sign the check over to get the price of the new car down and thus pay less sales tax on the new car?
4. Would it work better to just deposit the lump sum, and buy a new car if they offer 0% for 60 months?
Thanks for the help.
 

South Coast Guy

Veteran Member
Joined
Nov 17, 2010
Location
Mattapoisett, MA
TDI
2009 Jetta TDI wagon
If you sell your car for more than you paid for it, you have a taxable capital gain. Are you selling your car for more than you paid for it? If not, I don't think there is a taxable event.
 

BuyMeBackSoon

Veteran Member
Joined
Jun 3, 2016
Location
Or
TDI
2013 golf
South Coast is correct. Also #4 usually those offers are either 0% or cash , got to crunch numbers. #2 would not be a valid choice, just evading tax liability if you did have a gain. In some cases if you depreciate the car for biz use then you might have taxes to deal with.
 

bockegg

Veteran Member
Joined
Apr 25, 2006
Location
PA
TDI
2009 Jetta Loyalty TDi w/ DSG
South Coast is correct. Also #4 usually those offers are either 0% or cash , got to crunch numbers. #2 would not be a valid choice, just evading tax liability if you did have a gain. In some cases if you depreciate the car for biz use then you might have taxes to deal with.
Thanks. The VW's that I am interested in now all have 0% for 60 months and $1,000 or $500 cash off. This is because they need to move the 2016 cars immediately because the 2017's are here. I won't be selling my car for more than I got it for, so I guess it is best to pocket the cash and go after a car for 0%
 

dgoodhue

Veteran Member
Joined
May 3, 2014
Location
Framingham, MA
TDI
'14 6MT JSW
https://www.irs.gov/pub/irs-pdf/p4345.pdf

I'm not a tax laywer but look at the punitive damages section, and loss of values section. I believe this would apply to the restitution portion of the payment.
This is the applicable section.
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  1. Property settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement.
  2. If the property settlement exceeds your adjusted basis in the property, the excess is income. For more information, see the Instructions for Schedule D, (
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Those of us who have small profits should be able reduce or eliminate the "excess income", by deducting the accessories, maintenance and repairs that were purchased for the car. The only owners that should have any significant tax implications is those who depreciated the car for business use.


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GetMore

Veteran Member
Joined
Apr 10, 2003
Location
Patterson, New York
TDI
1997 Passat TDI, 2010 Jetta Sportwagen
If you pay part of the car in cash the purchase price is still the same, so your taxable amount will also be the same. When you trade a car in you are selling them the car, so you are actually reducing the price you pay.
In other words, it doesn't matter how much you finance, it is the selling price of the vehicle that gets taxed. So, scenarios three and four are equal.

Scenarios one and two are equal. As long as your basis in the vehicle is greater or equal to your payment you should not have to worry about taxes. I believe your basis starts with your out-the-door price, which includes taxes, registration, and fees. Maintenance and add-ons will add to the basis. I don't know if interest on the loan counts or not.

I don't think the IRS is even going to think about trying to get tax money on the buyback. They know that in virtually every case it is untaxable. The tiny number of people that might actually profit probably won't even pop up on their radar.
However, a business that depreciates their vehicles as a business expense would be subject to taxes.

Unfortunately, VW has chosen to not allow you to trade the car in toward another vehicle, their payment to you is it's own operation, and buying a new vehicle will be another one altogether.
 
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