How to get IRS deductions on a car collection? We have 39 cars and insured at $3,150,000. We use them in movies and weddings.
My CPA does not have a clue about this except he thinks I need to get a tax attorney and something about a “Charitable Remainder Trust.” I am planning to pay for expertise. This is not an a Do It Yourself.
I am in Atlanta GA.
Bill, I see you have no forum replies. I’m no expert on the subject, but have looked into the same thing in the past, and will offer some opinions. Worth nothing, just talking.
I looked up a “Charitable Remainder Trust”, and I don’t think that’s any help at all.
At one time I looked at setting up my collection as a business (since I did buy and sell cars occasionally). You can do that, and deduct expenses and other things, BUT you DO have to buy and sell cars. If set up as a business you HAVE to show a profit, I think it’s 2 out of the first 5 years, or the IRS will not accept it as a business.
Same with using cars for weddings and events, you must get paid for it and show a profit, possible but difficult.
Purely as a hobby, there’s not much you can do tax-wise, other than treat the cars as capital investments. Thus, capital gain and loss rules apply on taxes. Of course, to do that, very clean records must be kept on each car, no “cash on the hood” deals!
Just my opinion, none of above is legal advice. Good luck! David C.
Thank you, David,
It seems that you cannot deduct expenses only if you have income from cars.
Weddings, Events, movies, renting a car to someone, and get paid. That and only that income can be expensed, against car-related expenses.
I did look at a “Charitable Remainder Trust.” But these are specific vehicles used in Estate Planning. If you are over the IRS guidelines that means when you die, your estate can then donate a car to a charitable institution and relieve some of the bite.
If I have a business, that is renting or selling or getting paid for mechanical work then I can expense against that income. Let’s us say that I took in $7,000 in weddings, etc. I can only deduct expenses, related to the business, in toto $7,000 expense.
Your best tax break is residential income.
However, you must make a profit within three years, or you can be in the “Hobby Category,” and considered NOT a business.
I am exploring the idea of a Foundation. Might help, but a lot of money!
DISCLAIMER! I am not a CPA or Attorney. Please do not rely on this info unless you run it by a CPA.
The surprising thing I recall learning about a CRT is, only a portion of the original trust assets have to end up at the charity. I have no expertise in this however.
I think the best way to reduce your taxes is to spend all your money on old cars (easy to do, ask a pilot how much money it takes to own and fly an airplane and he’ll tell you “all of it”), then you can be broke and pay no tax at all!
<p style=”text-align: left;”>A Pierce will certainly help one make a small fortune…if you start with a large one…</p>
Thank you, Randy! Reminds me of the “Beverly Hills Hillbillies.”
Jethro Clampett said to his uncle, Jed Clampett, Jethro said, “Uncle Jed, I could manage your money and make you a millionaire!” Jed laconically responded, “That’s what I was worried about, I am now worth $140Million dollars right now!”
Thanks for the fun response!