If I was given a car as a tax-free gift (paid $1), is the profit from a future sale taxable (as income)?

Question

Basically, I was given a car worth $15,000, which is not taxable because it is joint property of my parents (they are allowed to give just over $20k per year of shared, physical property to a child, tax-free). I will count the sale price on the title transfer as $1. If I sell it next year, say for a $13k profit, will this add $13k to my taxable income?

Answer 1

You're in pretty good shape here although I'd be sure to say an extra big Thank You to your parents. Together they can give anyone (not just children) up to $24,000 per year without incurring gift tax (annual exclusion of $12,000 time two since it's both your Mom and Dad together). Your parents will not have gift tax here so they're OK.

You DO have to pay tax on the sale of personal property but you won't have a gain. You pay tax for any amount over your tax basis and you will acquire the basis of the donor. Just make sure you know what your parents paid and have records. Also document the gift and you should end up selling for less than your tax basis and not have a capital gain to report. In the very unlikely event that the car sells for more than your parents paid then you would realize gain when you sell and need to pay tax.

Make sure you document things and you should not have any tax to pay here.

Answer 2

You should actually record the transfer as a gift, not a sale for $1.00. Most states will not tax such a transfer and treating it as a gift will transfer your parents tax basis for computing any gain if you eventually sell the car. If you record the transfer as a sale for $1.00, many states will charge sales tax for the fair market value and the IRS will argue that your tax basis is $1.00 and tax any gain above that amount when and if you sell the car.

Answer 3

If you receive an item as a gift, then your basis is that of the giver. I assume your parents paid a normal price for the car, even though you didn't - so your basis would be what they paid - so no, you wouldn't owe tax on the sale.

Answer 4

seems clever. The sale of personal property is not considered income tax - mostly because its rare to make a profit off of something that you have boughten. So long as its not real estate your cool

Answer 5

I would think so. Anything we, you and I, him, her, they or whoever sell something, there is an appropriate tax deduction that follows. - Although, if you are not too sure, and this is a car matter, maybe go to DMV (USA) and kind of ask the clerks there - to be safe.