Taxpayer asks:
Earlier this year, I agreed to co-sign on a loan for my adult son for a new car so that he could get to work. He made the first payment and has not made payments since. I have made all of the other payments.
I have 2 questions:
Since I really bought the car, can I claim the deduction on new cars this year?
If I sell the car for less than I paid for it, can I claim a loss?
Thanks for your time.
Taxgirl says:
Okay, I’m going to make a pretty big assumption here. I’m going to guess that you merely co-signed on the loan for the car but your name is not on the title. Co-signing for a loan doesn’t give you ownership rights in the car, even if the primary signer defaults. That’s one of the tricky bits about co-signing. You’re guaranteeing the loan, not buying the car.
If you didn’t actually buy the car – meaning that you don’t own it – you would not not be entitled to the new car sales tax deduction.
If you were to sue for ownership of the car (which I imagine that you’re not inclined to do), I still don’t think you’d qualify for the deduction. At that point, I don’t think you could argue that “the original use… commences with the taxpayer” which is the criteria for the deduction.
If, however, your name is on the title, then I think you would be entitled to half of the sales tax paid as a deduction. I haven’t seen any documentation on this yet but it would seem to me that if the car otherwise qualifies, and you own half of the car, you would be able to claim a portion of the deduction (if any of my colleagues have seen this matter addressed, by all means, chime in!). But I’m guessing that’s not the case here since co-signers rarely appear on the title and since you mentioned that your son made the first payment (it sounds like you meant for him to own the car outright).
And I’ve got more bad news: you can’t take a capital loss on the sale of the car, either. Even if you eventually take ownership of the car and sell it for a loss, there’s no capital loss treatment for the sale of “personal use property” – that includes houses and cars.
Perhaps you can save yourself some agita and work out a payment plan with your son to repay the money that you’ve paid on his behalf? I hope it all works out.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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It’s not just the American automotive industry that is facing difficulties these days: the Russian automotive industry is struggling, too. I know, I know. You’re thinking “the Russians have an automotive industry?” It’s no Big 3 (which is perhaps a good thing lately) but it exists. Just barely.
To protect the industry, the Russian government has slapped an increased duty on imported vehicles. It is not a popular tax. As prices soar for what are considered substandard vehicles, Russians have sought out second-hand imports, primarily from neighboring Japan.
This week, a protest against the increased tax in the port city of Vladivostak boasted at least 500 protesters. At least 100 Russian protesters were subsequently detained by police. The arrests won’t stop protestors who are planning more demonstrations in the coming weeks.
An organized tax protest over taxing imports? How very 1773 America of them.
Yeah, I wanna know, too.
My best laid plans have gone awry – this has been one of the busiest summers that I can remember (that’s supposed to be a good thing, right?).
I haven’t had a second to go to the movies. And since no one has inquired about Pixar’s “Cars”, the only movie that I have seen on DVD this summer (over and over and over), I’m far behind for this year’s taxgirl goes to the movies contest.
With that, I’m announcing that the contest has been extended through mid-October. Details forthcoming. You still have time to get your suggestions in – go to this post to leave your recommendations!
I’m sure that you’ve seen a number of signs and ads that encourage you to donate your vehicle to charity. In our area, they’re plastered all over the place… Do they actually work?
Not so much anymore. In 2004, Congress changed the rules regarding car donations for charity. The rules more or less limited the deduction that you could claim to $500 or the lesser of the car’s fair market value (good) or the actual proceeds from the sale of the car (not so good). The latter has seriously impacted both the number and value of used car donations.
How much of an impact did charities see? The accounting firm of Grant Thornton reports that between tax year 2004 and 2005, the number of car donations valued at more than $500 dropped by approximately 67%. The total value of donations fell more than 80%.
What happened?
The changes in the rules may have made it more appealing for some folks to sell rather than wait to find out the charitable donation value. With the lack of a large deduction as a “sure thing” – the numbers of donations dropped. And the requirement to substantiate the donation by using the value of the sale clearly forced folks to, um, maybe not *fudge* on their returns (not that I’m saying it happened). So a number of lovely cars (perhaps like the one pictured above) that were being donated to charity for “fair market value” were revalued – producing a very different result than before.
But there was good news: despite the reduction in charitable car donations, Americans actually increased the value of overall charitable donations in that same time by a factor of 10%. The study did not specify whether that increase was largely cash or goods. I’m guessing it was heavily stocks and appreciated assets – but that’s just me.
But it does make me wonder… If you donated to charity last year, was it mostly goods, mostly cash or a combination of the two?
