Taxes on items purchased for less than market value?

[johnguerin]

What is the name of your state?Illinois

I know that if I *win* the Lottery or *win* something like a car, I am supposed to treat the money or the item as "income" and pay income taxes accordingly.

But does this apply for items that are PURCHASED for less than their apparent "market value"

example: I am offered to purchase for $5000 a New Car with an MSRP of $50,000

If I act on this "offer" would I pay "sales tax" on the amount I paid? or on the "value" of the car ($50,000)
Also- would I be obligated to pay income tax based on the difference between what I paid ($5000) and the MSRP of the item? (a difference of $45,000)

If this is considered income, then wouldn't I be obligated to pay income tax on every item I have ever purchased that was on sale for 1/2 off or something?

 

[seniorjudge]

What is the name of your state?Illinois

I know that if I *win* the Lottery or *win* something like a car, I am supposed to treat the money or the item as "income" and pay income taxes accordingly.

But does this apply for items that are PURCHASED for less than their apparent "market value"

example: I am offered to purchase for $5000 a New Car with an MSRP of $50,000

If I act on this "offer" would I pay "sales tax" on the amount I paid? or on the "value" of the car ($50,000)
Also- would I be obligated to pay income tax based on the difference between what I paid ($5000) and the MSRP of the item? (a difference of $45,000)

If this is considered income, then wouldn't I be obligated to pay income tax on every item I have ever purchased that was on sale for 1/2 off or something?

Sounds like someone is fixin' to scam you big time.

 

[johnguerin]

yeah, American Express is looking to scam me.

right.

 

[Snipes5]

If you purchase a $50,000 whatever for $5000, the income occurs when you sell it. If you sell it for more than you paid for it, you have a capital gain. Even if it's a car.

Snipes

 

[abezon]

It sounds like you won a car & have to pay the sales taxes & license fees to get title. In that case, the $50,000 is income to be reported on line 21 of your 1040.

 

[LdiJ]

It sounds like you won a car & have to pay the sales taxes & license fees to get title. In that case, the $50,000 is income to be reported on line 21 of your 1040.

Doesn't sound like Amex is treating it that way.

 

[johnguerin]

I did not "Win" a car

is there something wrong with my original post that causes people to assume something else? I did not "win" a car.

As part of a special promotion, American Express is offering some items at a substantial discount to the MSRP.

It is sort of a contest though, you "Win" the chance to purchase the item at the lower price.

If I am selected to participate in this "offer" I have the option to PAY $5000 for a car that has a sticker price of about $52,000

Since that is the price that the item is being offered to me for sale and there is no "rebate" involved, I "should" be paying State Sales tax on the $5000 purchase price and not $52,000.

My chances for actually doing this are Slim and None, but I'd like to know what I am getting into before I do.

The capital gains comment makes the most sense so far, thank you

 

[efflandt]

Not sure if part 1 or 3 applies under "How do I pay IL Use Tax" at http://www.revenue.state.il.us/Individuals/SalesandRelated/use.htm

If delivered through a local dealer, that dealer would likely collect any sales tax required.

If part 3 applies, chart of use tax for form RUT-50 is http://www.revenue.state.il.us/taxforms/Sales/rut50taxchart.pdf

I believe any required sales or use tax has to paid before a vehicle can be titled or registered (or at least I had to do that before registering a mail order boat shipped untaxed from TN).

 

[shortbus]

Disagree. The income occurs when he receives the car & must be recognized then. However, he has to recognize the difference between FMV and what he paid as income. Note that because cars usually sell at a discount to MSRP, he can argue a somewhat lower number for FMV.

If you purchase a $50,000 whatever for $5000, the income occurs when you sell it. If you sell it for more than you paid for it, you have a capital gain. Even if it's a car.

Snipes

 

[dallas702]

OP; You are about to be ripped off. But the good news is then you can claim your loss as "casualty".

No one is going to "sell" you a $50,000 car for $5,000.

Besides, when you register the phantom car the DMV will assess you sales tax based on the full value...but that's just your state.