Selling my car for more than I paid - How to calculate capital gain for taxes?

I'm in what seems like a weird tax situation and need some advice. I bought my SUV new during the chip shortage when dealerships were desperate to move inventory (paid $34,500 including about $2,600 in sales tax). Now two years later, I need to sell it and the market is still crazy - I've got a buyer willing to pay $42,000 for it. I know I'll need to pay long term capital gains on the profit from selling my car. What I'm confused about is how to calculate the exact profit for tax purposes. Do I include the sales tax I originally paid when figuring out my cost basis? Would the profit calculation be: $42,000 (selling price) - $34,500 (purchase price including tax) = $7,500 profit Or would it be: $42,000 (selling price) - $31,900 (purchase price without tax) = $10,100 profit I've never had to report a capital gain on a personal vehicle before - always lost money selling cars in the past! Anyone know the correct way to handle this for tax filing?

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20 comments

CosmicCruiser

•8M

You're in a relatively unusual but increasingly common situation these days! The good news is this is pretty straightforward from a tax perspective. For calculating capital gains on personal property like a vehicle, you generally include all costs that went into acquiring the asset in your basis - and that includes sales tax. So your first calculation is correct: $42,000 - $34,500 = $7,500 would be your capital gain. Make sure you keep documentation of both the original purchase (with tax paid) and the sales transaction. You'll report this on Schedule D of your tax return as a long-term capital gain since you owned the vehicle for more than a year. The current long-term capital gains rates are 0%, 15%, or 20% depending on your income bracket.

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CosmicCruiser

•8M

Regular maintenance costs like oil changes, new tires, or routine repairs generally can't be added to your basis - those are considered normal costs of ownership. However, if you made significant improvements that actually increased the value of the vehicle (not just maintained it), those might be added to your basis. There is no minimum threshold for reporting capital gains - all capital gains must be reported on your tax return regardless of the amount. Even a $1 gain technically needs to be reported. The IRS doesn't have a de minimis exception for capital gains reporting.

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Ethan Taylor

•8M

I used taxr.ai last year when I sold my truck for more than I paid and had this exact same question! Their system actually caught that I had forgotten to include the original sales tax in my basis calculation and saved me from overpaying. I uploaded my purchase documents and sale info to https://taxr.ai and it analyzed everything, showed me exactly how to calculate the correct capital gain, and even explained how to report it properly on Schedule D. Saved me a bunch of time trying to figure out all the details myself, and I felt confident the calculation was correct.

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Ethan Taylor

•8M

For trade-ins, it's different - you generally don't recognize gain or loss when trading in. Instead, your basis in the old vehicle gets rolled into the basis of the new one. So if you traded in a car worth more than you paid, you'd have a lower basis in your new car rather than paying tax on the gain immediately. I actually did try using my regular tax software first, but it didn't specifically prompt me about including sales tax in my basis calculation. It just asked for purchase price and selling price without much guidance about what should be included in "purchase price." The specialized analysis made me feel more confident I was doing it right, especially since this isn't a common tax situation for most people.

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Carmen Lopez

•8M

I was really skeptical about using a specialized tax tool as mentioned in this thread, but after struggling with my unusual car sale situation last month, I decided to give taxr.ai a try. Honestly, it was surprisingly helpful! I had sold my 2-year-old Tacoma for way more than I paid and was getting conflicting advice from friends about how to handle the capital gains. The tool clearly explained that I needed to include not just the purchase price but also my original sales tax, delivery fees, and even the cost of the aftermarket roof rack I had installed (which actually was considered an improvement, not just maintenance). Saved me from potentially overpaying by about $800 in taxes. Will definitely use it again if I ever have another unusual tax situation.

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Andre Dupont

•8M

If you're planning to call the IRS to confirm how to handle this, good luck! I spent literally 3 hours on hold last month trying to get similar car sale capital gains questions answered. Eventually gave up after the second disconnection. A colleague recommended I try https://claimyr.com instead, and it was a complete game-changer. They got me connected to an actual IRS agent in about 20 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, sales tax should be included in your cost basis, and also explained how to document everything properly. Totally worth it not to waste hours on hold.

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Andre Dupont

•8M

It's not someone else waiting on hold for you - it's an automated system that navigates the IRS phone tree and holds your place in line. When an actual agent answers, the system calls your phone and connects you directly to that agent. You don't have to listen to hold music for hours. They use technology to monitor the IRS queue and call at optimal times. I was skeptical too, but it worked exactly as advertised. I'm not claiming they have some "front of the line" access - they're just more efficient at dealing with the system than individuals making one-off calls. Think of it like having a bot refresh a page to get concert tickets instead of manually clicking refresh yourself.

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Zoe Papanikolaou

•8M

Well I owe an apology to comment #4. After getting disconnected THREE times trying to call the IRS myself about selling my Jeep for a profit, I reluctantly tried Claimyr. It actually worked exactly as described! Got connected to an IRS rep in about 25 minutes (while I was making dinner, not actively waiting on hold). The agent confirmed that yes, sales tax is part of my basis calculation AND pointed out that the documentation requirements are different for capital gains on personal property vs. real estate. For anyone who needs to call the IRS about something like this - especially during busy season - this service is legit. Saved me from wasting another afternoon on failed calls.

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Jamal Wilson

•8M

You'll need to file Schedule D (Capital Gains and Losses) along with Form 8949 (Sales and Other Dispositions of Capital Assets). On Form 8949, you'll list the vehicle sale in Part II (long-term transactions) since you held it for more than a year. Be detailed in the description - include the make, model, year, and VIN if possible. This helps document that this was a one-time personal vehicle sale and not part of a pattern that might suggest you're in the business of selling cars.

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Maya Patel

•5M

Great question about the Washington capital gains tax! You're correct that Washington's new 7% capital gains tax (RCW 82.87) only applies to certain types of capital assets, and personal vehicles are specifically excluded. The tax applies to gains from stocks, bonds, business interests, and similar financial assets, but not to personal property like cars, boats, or household items. So for your car sale situation, you'd only need to worry about federal capital gains tax, not the Washington state tax. This is actually one of the few advantages of Washington not having a general state income tax - most capital gains on personal property aren't subject to additional state taxes here. Just make sure you keep good records showing it was a personal vehicle and not held for business purposes, since that distinction could matter for other tax implications.

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