Selling a gifted vehicle?

[olynch76]

What is the name of your state (only U.S. law)? Utah

My wife and I were gifted a vehicle from her parents 5 Months ago. We paid no sales tax- not sure if it was sold as "gifted" or sold for $1. We have decided to sell the car for $28,000 because we could use the cash. Do we have to pay tax on the sale of a gifted vehicle- by declaring the $28,000 as income or gains? In what way should the original gifted car be reflected in our 2008 taxes? In what way should the sale be reflected in the 2009 taxes? Please advise. Thanks!

 

[FlyingRon]

If it was a gift, you would get the basis of the giver (i.e., what they paid for it) If you "bought it" for a dollar, your basis is $1. The difference between the sales price and the basis is the capital gain.

So if it was a gift, and the car has not gone up in value (most don't) then you don't owe any tax. If you bought it for $1, then you owe capital gains (at the short term rates it's typically the same as other income).

 

[tranquility]

I would say there is no gain as long as the property did not appreciate after it got into the OP's hands.

The parents are not able to take the loss on the original "sale". Not because it's a personal asset (Actually, we don't have that fact, it could have been a business vehicle--but it doesn't change the analysis.) under 262, but because it is a related party transaction under Section 267. There at 267(d), the amount which would have been a loss (which was denied) can be deducted from any subsequent "gain" by the first party afterwards.

However, we might cut out that part and go straight to the bargain sale regulations at 1.1015-4 and say the basis will be the lesser of the transferor's basis or the FMV at transfer (or the greater of the adjusted basis or the amount paid) plus any gift taxes paid on the transfer.

In either case, there is almost assuredly no appreciation on the vehicle in the time it was in the OP's hands so no gain on the sale. (If personal property, no loss would result either.)

 

[olynch76]

Follow up question

Thank you for answering my question (it was in fact gifted) - it's nice to know I don't pay taxes on the sale price of the car as we will be selling it less than the original purchase price (before the gift). I will be using Turbo Tax for 2008 and 2009. Do I need to mention either one on the tax forms- with the car gifted in 2008 and sold in 2009?

 

[tranquility]

Report it, but make sure you check whatever box you need to to say it is a personal loss.