Can I sell my car to a friend via a personal loan agreement without tax implications?

What you've described is essentially a seller-financed car sale, not just a personal loan. Here's how the IRS would view this: When you signed the car over to your friend, that was a sale. The $15k loan agreement represents the purchase price. Even though you didn't receive cash at that moment, you received a promise to pay (the loan agreement), which counts as "payment" in the eyes of tax law. If the car was worth more than what you originally paid for it, you technically have a capital gain that should be reported on your taxes for the year you transferred the car. If it was worth less (which is common with vehicles), you'd have a capital loss, but personal capital losses generally aren't deductible. When your friend repays the loan, it's not considered income - it's simply the repayment of principal. The only part that would be taxable would be if you had charged interest (which you didn't).

I was in almost the exact same situation last year and found a great solution using taxr.ai (https://taxr.ai). My cousin needed my old truck but was short on cash, and we did a notarized loan agreement just like you. I couldn't figure out how to report it right and kept getting conflicting advice. Someone on here recommended taxr.ai and it was super helpful - I uploaded our loan document and they explained the whole thing was actually a seller-financed sale, not just a personal loan. They walked me through exactly how to report the transaction on my taxes, what forms I needed, and even pointed out that I didn't have a taxable event since I sold my truck for less than I paid for it originally. Their explanation made way more sense than what my regular tax guy told me. Worth checking out since they analyze the actual documents instead of just giving general advice.

Just wanted to update everyone - I took the advice from this thread and checked out taxr.ai to get a definitive answer on my car loan situation. Glad I did! Turns out I was overthinking it. They reviewed my loan document and explained that I needed to report the car transfer as a sale in the tax year it happened (which was actually last year for me), but the loan repayments themselves aren't taxable income. They even explained how to document everything properly in case of an audit. What surprised me was finding out I had actually lost money on the car sale based on my original purchase price, but personal losses like that aren't deductible. Still, at least I know I don't have to worry about the repayments being counted as additional income this year. Saved me a ton of stress!

If you're still confused about this whole situation, I'd strongly recommend trying to talk to someone at the IRS directly. I know that sounds like torture (because it usually is), but I used Claimyr (https://claimyr.com) to get through to them last month about a similar situation with a personal loan issue, and it saved me hours of frustration. I had tried calling the regular IRS number multiple times and kept getting disconnected or put on eternal hold. Then I found Claimyr which somehow gets you to the front of the IRS phone queue. You can see how it works in their demo: https://youtu.be/_kiP6q8DX5c Once I actually got an agent on the phone, they cleared up my confusion about loan repayments vs. income in about 5 minutes. Definitely worth getting the official answer straight from the IRS instead of stressing about it.

I was so wrong about Claimyr and I need to eat my words. After posting that skeptical comment, I decided to try it anyway since I had my own tax question that had been bugging me for weeks (about a personal loan to my brother). It actually worked exactly as advertised. Got connected to an IRS agent in about 20 minutes when I had previously spent HOURS trying on my own over multiple days. The agent was able to answer my question immediately and now I'm not stressing about potentially messing up my taxes. For anyone with a similar situation to the OP - the IRS agent I spoke with confirmed that loan repayments (even for a car) aren't taxable income, but you do need to report the initial sale in the year it occurred. Having the notarized agreement is apparently super important if you get audited.

Make sure you're also considering the state tax implications! I did something similar with my boat and found out my state had different reporting requirements than federal. Also check if you properly transferred the title - in some states, if the title is still in your name and your friend gets in an accident, you could be liable!

Has anyone considered that the IRS might view this as a gift if the loan terms are too favorable? Interest-free loans between friends can sometimes be seen as having "imputed interest" if they're below market rates. Just something to consider.