Will we owe taxes on the settlement benefits?

[Yankinwaoz]

I wonder if the IRS and state tax offices are going to view the settlement as a taxable benefit? I don't want to get hit with a fat tax bill the year after we settle our options.

The IRS taxes non-cash benefits from your job. I could certainly see them viewing some of this as "free money" that should be counted as income.

 

[newyorktdi]

If you make a profit from the sale of the vehicle to VW, that profit is considered income which is taxed if you claim it. Highly unlikely anyone is making any money, and if they are, probably not enough that they would be claiming a few bucks as income on their taxes.

 

[Justinw303]

The compensation is not taxable.

Source: I don't have one, but I'm not paying a dime of taxes on this.

 

[rogerd]

Your gain on the sale would be taxable as a capital gain. I'd expect VW will be submitting 1099s for us, so don't declare it at your peril.

 

[flee]

But as mentioned, your 'profit' will be relatively little, if anything.

 

[BuyMeBackSoon]

Your gain on the sale would be taxable as a capital gain. I'd expect VW will be submitting 1099s for us, so don't declare it at your peril.

Why 1099. When you go trade your car in at a dealership they don't do a 1099. The punitive portion of the money from VW shouldn't result in a taxable event.

 

[roger6855]

I don't think you have to pay any tax when you sell your car and I didn't think you payed taxes on settlements either

 

[Shawn MacAnanny]

Unless you're getting more than you purchased the vehicle for wouldn't it be considered a loss?

 

[ahfunaki]

The way that I look at it is I'm the seller and VW is the buyer. I've never paid taxes to sell a car before.

So I can't see how they would be able to tax us on this?

 

[ahfunaki]

Unless you're getting more than you purchased the vehicle for wouldn't it be considered a loss?

Random, but it's strange to me that your car is at 69 fuel-ups and so is mine.

My name is also Shawn...

 

[Shawn MacAnanny]

I know if you have a Paypal account and you receive more than $10,000 in payments for items it gets reported i forget which form, or atleast it used to be that way.

 

[Shawn MacAnanny]

Random, but it's strange to me that your car is at 69 fuel-ups and so is mine.
My name is also Shawn...

Haha that is very strange!

 

[> Luke <]

Fm > Rogert
Your gain on the sale would be taxable as a capital gain. I'd expect VW will be submitting 1099s for us.....

As Rogert notes, the issue arises only if VW sends out 1099s. Then they do have to be addressed. That can be done on the page you note that particular 1099. Any reducing figures would be inserted on that sheet. Ignoring the 1099 would be a mistake, as a copy has also been sent to the IRS, with your social security number. With that said, if VW asks for your S.S. #, that should be a flag alert on their also issuing 1099s.

 

[LogicBomb]

Unless VW gives you more than your purchase cost(s) + maintenance + up keep + modifications you do not have to file a 1099. There is no profit that will be made in this particular situation.

 

[fredthe]

From the documents:

What are the tax implications of receiving a settlement payment?
While it is the intention of the parties that any payments made as a result of the Class Action Settlement
not be subject to taxation, you should consult a tax professional to assess the specific tax implications of
any payment you may receive. For example, if you have used your vehicle for business purposes,
previously claimed a depreciation deduction on your vehicle, or receive an amount that exceeds the cost
of your vehicle, some or all of your payment may be subject to taxation.

Also, as for reducing sales tax because you "traded in" a vehicle:

Tax Implications. Nothing in the Class Action Agreement prevents tax-advantaged
sales tax treatment of the Buyback, which may be available
under the laws of some states. Class Members are encouraged to consult
their personal tax advisor for further assistance regarding any tax
ramifications of this Class Action Settlement.

 

[Airpizz6]

Am I in the minority?

Bought my '15 Passat TDI SEL in Aug 15. Paid $29.5K incl tax, title, etc. Have not spent one cent on maintenance or mods. Looks like I will get $32.7K via the buyback. Can't believe I am the only person realizing a profit by this mess. Given that those numbers are in the public record, I would assume I am going to be hit with a long term capital gain on that profit if 1099's are sent out by VW.

 

[LogicBomb]

Bought my '15 Passat TDI SEL in Aug 15. Paid $29.5K incl tax, title, etc. Have not spent one cent on maintenance or mods. Looks like I will get $32.7K via the buyback. Can't believe I am the only person realizing a profit by this mess. Given that those numbers are in the public record, I would assume I am going to be hit with a long term capital gain on that profit if 1099's are sent out by VW.

Fuel and insurance costs on top of your purchase price should push you near that range. Also, any interest you paid as well.

 

[MichVW]

I do not believe a "settlement" can be taxed. I may be wrong, but as someone else mentioned, I will not be paying taxes on any settlement monies I receive.

 

[RollingCoal]

You are correct that settlements are not generally taxed. Unless they set this up in some kind of way where the buy back doesn't constitute you selling a vehicle to VW it could potentially be taxed I guess. The reason I think it won't be taxed is no one here will be making a profit on the sale alone. Any additional money you receive that puts you over what you paid for the car is the settlement money plus the trade in. In otherwords if VW were literally buying your car back for 32k when you paid 28k you made a profit. If VW pays you 25k for the car it's a loss. When they throw the untaxed settlement money on top of the deal you may arrive at a figure which is higher then what you paid, but the actual sale of the car was not more than you paid.

 

[Jimmy Coconuts]

Bought my '15 Passat TDI SEL in Aug 15. Paid $29.5K incl tax, title, etc. Have not spent one cent on maintenance or mods. Looks like I will get $32.7K via the buyback. Can't believe I am the only person realizing a profit by this mess. Given that those numbers are in the public record, I would assume I am going to be hit with a long term capital gain on that profit if 1099's are sent out by VW.

Your $3200 "profit" (if you want to call it that) includes an owner restitution payment. The actual "buyback/trade-in" value of your car (sales price) is certainly for less than you actually paid, so the tax man can get bent.

 

[joewilhite]

NO. no tax on lawsuits or settlements

 

[DanB36]

NO. no tax on lawsuits or settlements

That is simply incorrect. Many (most, actually) types of lawsuit proceeds are taxable income. This settlement is written in such a way that the proceeds won't be taxable for most people, but as a general statement, that's incorrect.

 

[joewilhite]

http://taxation.lawyers.com/tax-consequences-of-a-legal-settlement.html

 

[bobgolf2004]

Bought my '15 Passat TDI SEL in Aug 15. Paid $29.5K incl tax, title, etc. Have not spent one cent on maintenance or mods. Looks like I will get $32.7K via the buyback. Can't believe I am the only person realizing a profit by this mess. Given that those numbers are in the public record, I would assume I am going to be hit with a long term capital gain on that profit if 1099's are sent out by VW.

The settlement does raise the question of tax treatment.

While the settlement includes CARB, the EPA, DOJ, and FTC, it does not include the IRS.

I expect the IRS will provide guidance in the future as to how it views the various payments available through the settlement, once the settlement is final, including whether or not it will require VW to issue 1099s, if the buyback is to be treated as an "involuntary conversion, and to what extent you may avail yourself of "like-kind exchange" treatment.

If you drove the car for business and claimed depreciation, you normally are required to report ordinary gain from an outright sale (i.e., you do not use the vehicle as a trade toward another car or other property) of the car to the extent that your sale proceeds exceed the adjusted tax basis for the vehicle.

If you drove the car solely for personal use, you normally have a capital gain to the extent the sale proceeds exceed the original purchase price, plus sales tax, plus any equipment added after you bought it.

Things like insurance and interest paid on a car loan do not factor in to what you paid for the car.

State laws (typically in conjunction with that state's lemon laws) from a manufacturer buy-back vary as to what extent you may use the proceeds to buy another vehicle and not pay sales tax on that new vehicle. In Wisconsin, if the manufacturer buys back a vehicle under the lemon law, and you traded in a car when you bought the lemon, you are treated as trading in that vehicle again when you purchase another vehicle, provided the manufacturer gives you a letter stating what the trade-in value allowed was when you purchased the lemon.

 

[BuyMeBackSoon]

^^^^^^ actual real info, must be a CPA , tax lawyer or slept in holiday inn.