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Capital Gains Question

slumlord44slumlord44 Member Posts: 3,702 ✭✭✭
edited April 2015 in Ask the Experts
Talked to the widow of a friend recently. She is in the process of selling a very nice customized '56 Chevy hardtop that her husband has had for many years. He has re done it twice. Chopped top, Packard taillights, full custom and very well done. High dollar car. She is going to have to pay capital gains tax when she sells it. I am not planning on dying anytime soon but we all go eventually. I have a fairly good sized gun collection. I am making arrangements with a local FFL that I like and trust to sell them here on GunBroker one at a time after I am gone. Is my wife stuck with capital gains tax? Will GunBroker send out a 1099? Will the FFL send out a 1099?

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    kannoneerkannoneer Member Posts: 3,374 ✭✭✭✭
    edited November -1
    Sounds like a problem looms on the horizon. How about just GIVING them away now?
    I'm in for a Colt 1911 if you have one!
    Others may have a different solution.
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    waltermoewaltermoe Member Posts: 2,065 ✭✭✭✭
    edited November -1
    Capital gains is on investment not inheritance.
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    nmyersnmyers Member Posts: 16,881 ✭✭✭✭
    edited November -1
    The only thing that I am sure of, is that no one is going to be sending anyone 1099's. Everything depends upon your state laws, your estate planning, & your domestic situation. If you are married upon your death, everything owned jointly with your spouse will pass directly to your spouse without tax consequence....unless you have other than normal arrangements.

    Your concern is really "probate", & how that is handled depends upon whether you or your wife die first. That's why it's so important that you have an up-to-date will prepared. Discuss your concerns with your lawyer. Items specifically listed in your will must be held by the executor until the probate documents are accepted by the court. And, the estate documentation will be official notice to government officials as to the existence of specific items.

    Be sure to tell your lawyer about any NFA items you own, as there are few options with these.

    Neal
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    HerschelHerschel Member Posts: 2,035 ✭✭✭✭✭
    edited November -1
    It would probably be worth checking with an accountant. I believe the basis in inherited property would be the value of the item when it is inherited, not what the deceased person had invested in it. You would only owe capital gains tax on the difference between the value when inherited and what you sold it for. I am not an accountant so take this for what is costing you.
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    Don McManusDon McManus Member Posts: 23,528 ✭✭✭✭
    edited November -1
    Capital gains is only on profit realized. If he had it redone twice, it would be surprising if there was much profit.

    Edit:

    As noted by others, a professional wrt to taxes is needed. If a community property state, there should be no inheretance or estate issues. If there are records of the costs of the restorations/modifications, there should be a process to establish a reasonable cost estimate that would greatly exceed normal maintenance costs, etc.

    In addition to a CPA, contacting a collector car club may be helpful in establishing a realistic and legally recognized cost basis.

    Regarding your question; you or you wife should re dive a bill of sale, and report the capital gains on 1040 Schedule D. There is no need to have a 1099, just your cost basis and your selling price. Ensure to include all costs associated with the purchase and sale that would mitigate the tax liability. Obviously cash sale of firearms purchased with cash and not recorded are not traceable.
    Freedom and a submissive populace cannot co-exist.

    Brad Steele
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    slumlord44slumlord44 Member Posts: 3,702 ✭✭✭
    edited November -1
    He paid $3500 for it. Asking price will be around $60,000. Her accountant says he can add in a "reasonable" amount for upgrades, maintenance, etc. Fortunately I have kept most of the receipts for the '57 T-Bird that I bought in '65 and am currently restoring for the 3d and final time. Still will be worth more than I paid for it. Wonder if I can deduct all the money I lost on all my driver cars over the years?
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    bigoutsidebigoutside Member Posts: 19,443
    edited November -1
    Don is probably correct.

    The issue in front of your widow friend is very complex. But I've rarely seen someone make money on an auto restore/customization.

    The reality is, imnsho, she needs a CPA or tax attorney. One that is local, and practices in her state. Her situation has nothing to do with wealth/estate planning.
    She just needs to abide by local and federal law.


    Your case is entirely different.

    As a rule of thumb, you can give assets away at three times.
    Before death
    At death
    After death

    The IRS prefers you do at or after. Because they add an additional tax into the mix. It used to be referred to as the estate (or death) tax. But recent changes in tax code have consolidated the gift and estate exclusions. And unfortunately made things more complex. But fortunately, have established clear lines of tax relief.

    Most folk assume that if their estate is under the $5million +/- limits, that there is no need to do estate planning. My experience is significantly different.

    With collectibles like rare firearms, or Super Bowl rings, or stamps, tax treatments change... (Did you notice how I just changed the characterization of your rifles and pistols? Pretty slick, huh?)

    You may want to place in trust. Or create an intentionally defective grantor trust. Or gift outright.

    Or maybe not. Lots of moving pieces.


    So to recap:
    1) your widow friend needs a CPA or tax attorney or tax preparer to play the hand she has been dealt
    2) you need a CFP and/or CWS and/or ChFC to help coordinate the tax and ownership aspects with a tax and/or estate attorney and/or tax preparer that practices in your state.

    I hope that helps.
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    tsavo303tsavo303 Member Posts: 8,905 ✭✭✭
    edited November -1
    Yes you can deduct value of restorations. Also it's not like anyone besides you is going to be reporting it to IRS. Talk to an accountant. Also if you lose money on other auto deals in the same year. Talk to an accountant if it's bothering you
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    grdad45grdad45 Member Posts: 5,330 ✭✭✭✭
    edited November -1
    Sell for CASH, sign the title, move on. Lots of things are disposed of that way. When my Grandfather died, my step-Grandmother sold a 75 lb chunk of pure turquoise that he had hidden in his jewelry shop for a nice price.
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    beantownshootahbeantownshootah Member Posts: 12,776 ✭✭✭
    edited November -1
    quote:Talked to the widow of a friend recently. She is in the process of selling a very nice customized '56 Chevy hardtop that her husband has had for many years. He has re done it twice. Chopped top, Packard taillights, full custom and very well done. High dollar car. She is going to have to pay capital gains tax when she sells it. Says who? Is this an item she inherited from a recently deceased spouse? If so, I don't think she's going to owe a cent, and I think she might want to discuss this with an accountant (see below).

    Edit: If its an item that she owned jointly with her husband as part of married communal property, then yes, she could be up for capital gains, which would be sale price, minus original cost of item minus documentable expenses (or some reasonable estimate thereof). Note that this is a bit different than an inheritance. EG if this guy had left the car to his son (instead of wife), the son "shouldn't" owe anything in capital gains. This is why estate planning is important!

    quote:I am not planning on dying anytime soon but we all go eventually. I have a fairly good sized gun collection. I am making arrangements with a local FFL that I like and trust to sell them here on GunBroker one at a time after I am gone. Is my wife stuck with capital gains tax? Will GunBroker send out a 1099? Will the FFL send out a 1099?
    Obviously, the gov't can't enforce a tax on transactions it doesn't know about. No, I don't think your FFL nor GB.com are obligated to report these types of transactions, and in practice, I don't think GB.com does. (IE it doesn't report every sale it makes to the IRS. . .that's cuckoo talk).

    But much more important, tax evasion may not really be necessary here.

    The law is such that the "basis" (buy price that applies for tax purposes) of any item transferred in inheritance is automatically adjusted to the fair market value of that item at the time of the inheritance.

    In other words, if you inherit an item and then immediately sell it at fair market value, you owe ZERO tax on the sale.

    Yes, this is a gigantic tax loophole that potentially lets the wealthy (and non wealthy) bypass massive capital gains taxes by passing on possessions to heirs. Rich people do know about this trick, and it plays a major part in estate planning.

    And please DO NOT take my word for it! This is directly from the IRS:

    quote:http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes#7

    What happens if I sell property that I have inherited?

    The sale of such property is usually considered the sale of a capital asset and may be subject to capital gains (or loss) treatment. However, IRC ?1014 provides that the basis of property acquired from a decedent is its fair market value at the date of death, so there is usually little or no gain to account for if the sale occurs soon after the date of death. (Remember, the rules are different for determining the basis of property received as a lifetime gift). Refer to Gift Tax FAQ.

    Anyway, if you can have your wife legally INHERIT these guns, she may not need to pay one thin dime in taxes. Again, this is where estate planning comes in!
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    slumlord44slumlord44 Member Posts: 3,702 ✭✭✭
    edited November -1
    I will be seeing an estate attorney in the near future to re do my will. Will be discussing this all with him. Trying to make sure I have info to ask all the questions that I need to. Sadly different attorneys seem to have different opinions as to what is the best way to deal with legal issues.
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