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Think I really messed up -may owe taxes on 18000 that I never saw

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PastorD

Junior Member
What is the name of your state? Indiana

Let my brother basically have my truck. I was still making payments on it though and over the period of about 2 years, he had made many customizations to it. He got into financial trouble and asked me to sell the truck so he could get his money "out of the truck" that he had put in by way of all the customizations. I ended up selling it, and after the bank took what I owed, there was an $18000 difference. They desposited it into my account, I withdrew it (cash at once) and gave it to my brother, as it was his for the customizations he had made.
Now then, its almost tax time, am I going to have to pay taxes on that 18000?? I wasn't planning on reporting it since I didn't keep it, or spend it. Someone said banks automatically reports large withdraws to the IRS. I don't want to get into trouble, but also don't want to pay taxes on money that I didn't keep or spend. Help...am I in for it?
 


seniorjudge

Senior Member
PastorD said:
What is the name of your state? Indiana

Let my brother basically have my truck. I was still making payments on it though and over the period of about 2 years, he had made many customizations to it. He got into financial trouble and asked me to sell the truck so he could get his money "out of the truck" that he had put in by way of all the customizations. I ended up selling it, and after the bank took what I owed, there was an $18000 difference. They desposited it into my account, I withdrew it (cash at once) and gave it to my brother, as it was his for the customizations he had made.
Now then, its almost tax time, am I going to have to pay taxes on that 18000?? I wasn't planning on reporting it since I didn't keep it, or spend it. Someone said banks automatically reports large withdraws to the IRS. I don't want to get into trouble, but also don't want to pay taxes on money that I didn't keep or spend. Help...am I in for it?


Q: Now then, its almost tax time, am I going to have to pay taxes on that 18000?

A: Yes, it is income.
 

PastorD

Junior Member
bummer

So does the bank then send me some year end statement saying how much I profited on the sale of that car, that I am to use when I file taxes? Or do I just incorporate that amount just based on my knowledge that I received it.

Also, how much taxes do I oweon that? Does just depend what bracket I fall in? My income from my job was $70,000 this ('05)year. So really then my income was $88,000 is what you're telling me, and so it would be what ever tax bracket I fall into given that amount minus my itemized deductions??
 

LdiJ

Senior Member
seniorjudge said:
Q: Now then, its almost tax time, am I going to have to pay taxes on that 18000?

A: Yes, it is income.
I am going to disagree with that.

Is the 18k plus the balance of the loan you paid off, less than your original purchase price of the truck plus the cost of improvements? If yes, its not taxable. If no, then its taxable only to the extent that the total cash you received exceeded the basis in the vehicle.
 

seniorjudge

Senior Member
LdiJ said:
I am going to disagree with that.

Is the 18k plus the balance of the loan you paid off, less than your original purchase price of the truck plus the cost of improvements? If yes, its not taxable. If no, then its taxable only to the extent that the total cash you received exceeded the basis in the vehicle.
I ended up selling it, and after the bank took what I owed, there was an $18000 difference.

If this is NOT a profit, then LdiJ is correct.
 

PastorD

Junior Member
Now we're getting somewhere

Ok I'm not sure I understand fully what you are saying, so how about a numbers breakdown. You tell me based on this scenerios using nice round numbers, what would be the tax implications.

I bought the truck for $25k -sold it for $33k 2 years later. I owed roughly $15k at the time of sale. Over the course of those 2 years of ownership, the amount spent on custimizations was (for round numbers sake) $15,000

I really appreciate the help
 

seniorjudge

Senior Member
PastorD said:
Ok I'm not sure I understand fully what you are saying, so how about a numbers breakdown. You tell me based on this scenerios using nice round numbers, what would be the tax implications.

I bought the truck for $25k -sold it for $33k 2 years later. I owed roughly $15k at the time of sale. Over the course of those 2 years of ownership, the amount spent on custimizations was (for round numbers sake) $15,000

I really appreciate the help
You should pay taxes on the profit.
 

anteater

Senior Member
seniorjudge said:
You should pay taxes on the profit.
There isn't any profit.

The amount of the loan is irrelevant.

The cost basis is $25K + $15K = $40K. The sales price was $33K. There was a loss of $7K. But since losses on personal use assets are not deductible, the transaction doesn't appear on the tax return.

If you are worried about IRS inquiries on the $18K, you and brother keep the records on purchase price, cost of customizations, and sales price. You were simply returning to brother his share of the sale proceeds on a transaction on which there was a loss.
 

seniorjudge

Senior Member
anteater said:
There isn't any profit.

The amount of the loan is irrelevant.

The cost basis is $25K + $15K = $40K. The sales price was $33K. There was a loss of $7K. But since losses on personal use assets are not deductible, the transaction doesn't appear on the tax return.

If you are worried about IRS inquiries on the $18K, you and brother keep the records on purchase price, cost of customizations, and sales price. You were simply returning to brother his share of the sale proceeds on a transaction on which there was a loss.
There you go, preacher man.

This advice would've cost you a couple of hundred dollars on the street.

Thanks, ant!
 

LdiJ

Senior Member
PastorD said:
Ok I'm not sure I understand fully what you are saying, so how about a numbers breakdown. You tell me based on this scenerios using nice round numbers, what would be the tax implications.

I bought the truck for $25k -sold it for $33k 2 years later. I owed roughly $15k at the time of sale. Over the course of those 2 years of ownership, the amount spent on custimizations was (for round numbers sake) $15,000

I really appreciate the help
Your basis is 25k plus the money spent on customization. Therefore your basis in the truck was 40k. You sold it for 33k, therefore you sold it at a loss. There is no profit, so there is no tax. However, you better make sure that you have receipts to back up every bit of the customization.

If you had not customized the truck, then you would have had a profit of 8k (33-25) which would have been taxable.
 

LdiJ

Senior Member
anteater said:
There isn't any profit.

The amount of the loan is irrelevant.

The cost basis is $25K + $15K = $40K. The sales price was $33K. There was a loss of $7K. But since losses on personal use assets are not deductible, the transaction doesn't appear on the tax return.

If you are worried about IRS inquiries on the $18K, you and brother keep the records on purchase price, cost of customizations, and sales price. You were simply returning to brother his share of the sale proceeds on a transaction on which there was a loss.
I didn't see your response before I responded...Shame on me.
 

PastorD

Junior Member
Thank You All Very Much

Can't thank you enough. It is comforting to here 2 different people say the same thing, must be right.
I must say the assistance given here compared with some of the responses I've seen in the other forums on this site, is far superior.
Thanks again...will start digging up receipts tonight! -Thanks

God Bless
 

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