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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10096
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Found a classic car in Belgium 4 years ago. Had it restored

Customer Question

Found a classic car in Belgium 4 years ago. Had it restored in Holland.
Now selling it in Holland and money gets transferred to the US - what can I expect to pay on income tax ? If I buy and sell old cars here in the US,I am free to do so up to 10 cars a year - what now if the money comes from overseas ?
Please help me.
Erik in Los Angeles
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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Because you are a US citizen, the taxation does not change. US citizens and Tax residents (green card or substantial presence test) pay taxes on all worldwide inome (and under the same rules, capital gains, vs ordinary income, etc).

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Collectible and classic cars may require careful consideration for income tax purposes. They're often purchased and kept for a number of years -- during this time, owners frequently spend lots of money on their restoration and maintenance. They also tend to rise in value.

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When sold, classic vehicles frequently fetch much higher prices than sellers paid. In most cases this capital gain creates a federal tax liability. But remember: You can reduce this gain by counting any restoration costs as part of the price your paid for your car.

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I'm eager to hear your source for this 10 ar per year rule ... can you eduate me?

AND verify your tax residence if you would.

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Thanks

Lane

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I'll be here

Customer: replied 1 year ago.
Hi Lane,
I panicked for a moment when I gave my CC number and than your system did not recognize me, your website sucks, sorry. I got mad.
Question : what kind of tax percentage can I expect ? Annual income is $95K bought car for 7000 Euro, spent $26K on resto, spend $11K to fly 4 times to Holland to inspect and have car on shows and advertisements. . Sold car for $148K
What % tax can I expect ? Is it better to keep the money there and take a bit with us each time we visit ?
Customer: replied 1 year ago.
Hi Lane,
I panicked for a moment when I gave my CC number and than your system did not recognize me, your website sucks, sorry. I got mad.
Question : what kind of tax percentage can I expect ? Annual income is $95K bought car for 7000 Euro, spent $26K on resto, spend $11K to fly 4 times to Holland to inspect and have car on shows and advertisements. . Sold car for $165K
What % tax can I expect ? Is it better to keep the money there and take a bit with us each time we visit ?
Expert:  Lane replied 1 year ago.

Sorry - yep the system can be glitchy

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What you're talking about is a capital gain here (not ordinary income... until you become a dealer)

,,,

And it really sounds like (especially if you want to be able to deduct the travel andadvertising expenses as ordinary expenses -dollar for dollar deduction AGAINST that ordinary income) you already are.

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I'll calculate both ways

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First you've have to tell me how you file (married, joint, etc) and how mandy dependants; that will drive the brackets and rates

Customer: replied 1 year ago.
Married for 43 years. Wife files separately as she gets an income from babysitting our 3 grandsons at $12K a year she puts directly in her IRA. She's my dependant. we're both 63 and want to retire when debt free. We have still a $260K mortgage @ $1400 per m. Plus another $180K car that will be sold before we retire. Both cars will pay the mortgage - that's our goal.
If the amount the Tax boys take is too high I will keep the money in Holland - we came to the US to make a dollar, not to give 'm away. The current tax rule about foreign money will be revoked as soon as Trump takes over, next year. I can wait.
Customer: replied 1 year ago.
How can I put this page on "idle" as I have to leave now ?
Please call me, that would be easier.
I cannot work if this screen is open.
Erik in Los Angeles(###) ###-####
Expert:  Lane replied 1 year ago.

OK, so you are tax residents...

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I'm guessing that you mean she depends ON you (rather than being a tax dependant - that's not possible when you both file as married filing separately.

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If you're a tax resident (and the two ways that happens are either (1) Have a green card or (2) have substantial presence) - so I'll assume that you are both tax residents ... ALL worldwide income is taxed.

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Where you keep the proceeds of that sale are irrelevant. The taxable event is the SALE.

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I just had a client who inherited land in another country, eventually sold that land for a gain - and eventually found out the hard way (that's when he becaome my client) that all wordwide income is taxed if you're a US citizen or a tax resident ... it did not matter that he kept the funds over there after the sale settled.

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Expert:  Lane replied 1 year ago.

Oh Hi Erik ... was just posting that ... we kind of crossed there.

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You'll have to accept the offer I made for an additional $5, that's the only way they'll let us share confidential information like contact num bers

Expert:  Lane replied 1 year ago.

I see that it LOOKS like you requested a phone call but the system did not allow me to accept.

So I made an offer for $5 just now.

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Although if you want to come back later and continue in the venue, that wroks for me as well.

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Let me know

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Lane

Customer: replied 1 year ago.
please call me between 7.30 and 8.30 am Los Angeles time, if possible please.
My only question is what percentage of the sell price do I have to pay - and when ?
Directly when it comes in at the bank or on April 15 ?
Expert:  Lane replied 1 year ago.

Erik,

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This is an income tax. Income taxes are filed in April 15th of the year after the TAX year (the the calendar year when then income happens).

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And when the money comes into the bank is irrelevant ... iIt's when the income is CREATED that matters - Here, that's when you SELL the car, for MORE than you HAVE INVESTED in the car.

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This creates income, along with the other household income, and is reported on your tax return.

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The reason I asked for how you file (jointly, married filing separately, etc.) is that THIS, your filing status, DETERMINES the rates at which ALL of your income for the tax year will be taxed.

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Now, becasue you don't do this for a living, only doing on a couple of cars, this is considred a CAPITAL GAIN ... (there are only a few types of income, but the primary distinction is between ORDINARY INCOME and what you have here, a CAPITAL GAIN).

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CAPITAL GAINS have their own rates, which are actually driven by (dependent upon) your ORDINARY income tax rate.

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You said that you and your wife file as Married filing Separately. Here are the ORDINARY TAX RATES for a person whio files as MARRIED FILING SEPARATELY

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From the first dollar of taxable income for the year Up to $9,225 ... 10%

ON the next $9,226 to $37,450 ... 15%

On the next $37,451 to $75,600 ... 25%

On the next $75,601 to $115,225 ... 28%

On the next $115,226 to $205,750 ... 33%

On the next $205,751 to $232,425 ... 35%

And then for any taxable income over $232,425 .. the rate on those dollars is 39.6%

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Now, as I mentioned, CAPITAL GAINS (taxable income that is created when you sell something for more that you invested IN it) have their OWN rates ... BUT those rates are DEPENDANT ON the ORDINARY INOCOME rates above.

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Long-term gains (gains on assets that have been held for a year or more for selling) are taxed as follows:

  • 0% if taxable income falls in the 10% or 15% marginal tax brackets
  • 15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
  • 20% if taxable income falls in the 39.6% marginal tax bracket

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SO, This is how the tax is calculated ...

You didn't tell me how much your gains was on the car, just the sales price.

SO, I'll assume for simplicity's sake that the profit (the gain) was $100,000

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You also said that you file as married filing separately, and mentioned your WIFEs income, but I believe you were essentially telling me that this wsale would be your only income, so I'll make that assumption here as well.

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At a 100,000 gain, the first 37.450 of income would fall inthe the 10 and 15% ORDINARY INCOME tax brackets, so that tells you that the first 37450 of this assumed $100,000 gain would be taxed at a ZERO% rate ... (remember from above, that capital gains rates for those whose TOTAL TAXABLE INCOME, of which this gain is a part, is in the 10 or 15% ORDINARY rate is taxed at 0%.

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That leaves us with 62,500 of gain, which would ALL fallinto the OURDINARY RATE brackets of 25 and 28% meaning that THIS portion of your gain will be taxed at 15%.

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So GIVEN those assumptions, about your filing status (married filing separately), and about your profit (gain) on the sale of the car your tax would be 62,500 x .15 = 9375

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Now, again this assumes not only the DATA I've mentioned, but also that you are not a dealer, and several other things, but hopefully this provides a foundation for you to help understand how this all works.

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I'll speak with you this morining

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Lane

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Expert:  Lane replied 1 year ago.
Hi Erik,
I enjoyed talking with you.
I'll paste here what I just sent in the email.
Hi Erik.
I enjoyed speaking with you.
Here is a link to the estimated tax form:
http://www.irs.gov/pub/irs-pdf/f1040es.pdf
The vouchers are at the very bottom (page 11). You only need to cut out one of the vouchers (Use payment voucher 3 - due September 15th) and send.
Another option would be to send 2500 now and then send another 2500 on the last voucher, (Voucher payment voucher 4 - due January 15th 2016).
This should be enough that you will not have an underpayment penalty, and will pay approximately 1/3 of the tax due on the gain.
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