If I sell an auto for less than I owe can I take a capital loss?

Question

I take capital gains and losses in stock and debt interest paid to me so why not take it in interest I am paying on something I took a loss on. It happened to be my car is all.

for tax purposes.

Answer 1

You know ... that's a DARN GOOD Question ... I'd never really thought of that so I went out and did a little research and this is what I found out. It appears like your car is not eligible for two reasons ... one a car is not an investment, it's a purchase ... like a dishwasher or a new suit. You bought it for utility need or pleasure, but not with the intent of making money on it or the knowledge that it should increase in value over time (like a stock or security).

And the second provision is that a car is considered to be Personal-Use Property and personal-Use property is exempt from capital gains and losses even though it IS a capital asset. Of course this also means that if you sell your car for MORE than you paid for them you don't have to pay capital gains either ... just can't claim it as a loss.

Here is a statement off the IRS.gov website:
Topic 409 - Capital Gains and Losses
Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal–use property, such as your home or car, are not deductible.

Darn ... I thought you were on to something! :-)

Answer 2

A gain on the sale of a personal use asset is subject to capital gains tax. A loss on the sale of a personal use asset is not deductible.

Generally, the question of a gain rarely comes up since most personal use assets, with the exception of residences, depreciate in value.

Answer 3

Losses on personal possessions such as cars or residences are not deductible.