So my plan last year was to buy a new Honda Pilot ($44k) through my business (8.5% owner) let the business depreciate it. After 3 years sell it to myself for what’s left on the loan (originally @ 0% 48 months), then sell it personally in the open market to avoid biz capital gains. I know you can sell 6 cars personally without capital gains tax before registering as car dealer. How does this not work for me? For the business?
I have never sold a car between myself and my business. (Also not a tax advisor so talk to them about the details), but the logic here seems pretty solid at a high level.
I'd assume you need to sell it to your self at the value you depreciated the car to, in order to avoid a business capital gain. If you depreciate it to $11k, then sell it to yourself for $20k, that seems like a business capital gain (or atleast an offset to your prior depreciation)
Similarly, you would need to sell it to a third party at the same price you bought it from your company at. If you buy it from your company at $11k, then sell it on craigslist for $25k, you are supposed to pay personal cap gains tax.
Again, I am not even remotely a tax expert and pay for someone to do my personal tax...but logically, to avoid the capital gains, you would use the same price for ending depreciated value = price you buy from business= price you sell the car for.
The last question would be, do you have a higher tax rate on the business than capital gains? If so it may still be beneficial to aggressively depreciate the car on the business' books, and pay the capital gains when selling it to your self. If business tax is 40% but cap gains is 20%, I'd rather depreciate it to save 40% and pay the 20% on the sale.
(Final caveat, not a tax advisor and have never sold a car to myself from my business, so just applying some logic. Everything I could be incorrect due to nuances in the tax code.
So my plan last year was to buy a new Honda Pilot ($44k) through my business (8.5% owner) let the business depreciate it. After 3 years sell it to myself for what’s left on the loan (originally @ 0% 48 months), then sell it personally in the open market to avoid biz capital gains. I know you can sell 6 cars personally without capital gains tax before registering as car dealer. How does this not work for me? For the business?
I have never sold a car between myself and my business. (Also not a tax advisor so talk to them about the details), but the logic here seems pretty solid at a high level.
I'd assume you need to sell it to your self at the value you depreciated the car to, in order to avoid a business capital gain. If you depreciate it to $11k, then sell it to yourself for $20k, that seems like a business capital gain (or atleast an offset to your prior depreciation)
Similarly, you would need to sell it to a third party at the same price you bought it from your company at. If you buy it from your company at $11k, then sell it on craigslist for $25k, you are supposed to pay personal cap gains tax.
Again, I am not even remotely a tax expert and pay for someone to do my personal tax...but logically, to avoid the capital gains, you would use the same price for ending depreciated value = price you buy from business= price you sell the car for.
The last question would be, do you have a higher tax rate on the business than capital gains? If so it may still be beneficial to aggressively depreciate the car on the business' books, and pay the capital gains when selling it to your self. If business tax is 40% but cap gains is 20%, I'd rather depreciate it to save 40% and pay the 20% on the sale.
(Final caveat, not a tax advisor and have never sold a car to myself from my business, so just applying some logic. Everything I could be incorrect due to nuances in the tax code.
Good Luck
Unless you buy a used Porsche under warranty
Sure. You mean luxury brands tend to have shortened warranties on the used cars?
That would be covered under 'each model/make/region has its own nuances'