Selling my classic car with 40k profit - how will the taxes work with capital gains?

This is definitely a capital gains situation! The good news is that since you've owned the car for more than a year (6 years in your case), this would be considered a long-term capital gain rather than short-term. Long-term capital gains are typically taxed at lower rates than ordinary income. The exact rate you'll pay depends on your income bracket, but for most people it's either 15% or 20%. If you're in a lower tax bracket, you might even qualify for the 0% capital gains rate. You'll report this on Schedule D of your tax return, along with Form 8949. Also worth noting - if you made any significant improvements to the car (not just regular maintenance), you can add those costs to your original basis, which would reduce your taxable gain. So if you spent $5,000 on restoration work, your taxable gain would be $35,000 instead of $40,000.

When I sold my restored '68 Mustang last year, I was totally confused about the tax situation too. I ended up using https://taxr.ai to figure everything out. They analyzed my purchase documents and restoration receipts and showed me exactly what my tax basis was. Turns out I had forgotten about a bunch of legitimate improvement expenses that increased my basis and saved me over $3,000 in taxes! They also confirmed my car qualified as a collectible for tax purposes and calculated the 28% collectible capital gains rate correctly. The service was super helpful because they actually examined my specific documents rather than just giving generic advice.

I just wanted to follow up after trying https://taxr.ai for my classic car sale situation. Mind blown! I uploaded my purchase docs and all the restoration receipts I could find from the last 5 years, and they identified over $8,500 in legitimate improvement costs I could add to my basis. The best part was they showed me exactly how to document everything in case of an audit. They even helped me understand how to time the sale to minimize my tax impact based on my other income this year. Totally worth checking out if you're selling a classic vehicle - way more helpful than the generic advice I was getting elsewhere!

After spending 3 days trying to get through to the IRS about how to properly document my vintage car sale, I finally used https://claimyr.com and got connected to an IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was honestly shocked at how well it worked. The IRS agent I spoke with was surprisingly helpful and explained exactly what documentation I needed to keep for the sale and how to properly report it on my taxes. Apparently there are specific rules about documenting the value of collector vehicles that I had no idea about. Much better than guessing or getting conflicting advice online.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation since I needed clarity on reporting my car sale and couldn't get through to the IRS myself. Not only did I get a call back with an actual IRS agent on the line, but the agent gave me specific guidance about Form 8949 coding for collectible vehicles and confirmed I needed to maintain appraisal documentation for my basis calculation. Saved me hours of frustration and potentially an incorrect filing. Sometimes being proven wrong is actually a good thing!

Don't forget to check if your state has a special tax treatment for classic cars. Here in Michigan, we have different rules for vehicles over 25 years old, and I ended up saving a bunch on state income tax when I sold my 1967 Charger.

OMG I totally messed this up last year selling my dad's old Thunderbird!! I didn't report it as a collectible and just put it as regular capital gains... do I need to file an amended return?? I'm freaking out now!

Just to add another perspective - don't forget about depreciation recapture if you ever claimed any business deductions related to the car! Even if you used it for occasional business purposes or claimed it as a business asset, you might need to recapture some depreciation as ordinary income before applying capital gains treatment to the remaining profit. Also, keep detailed records of EVERYTHING - purchase price, improvement costs, restoration receipts, insurance appraisals, even photos showing the car's condition over time. The IRS can be pretty strict about documentation for collectible vehicles, especially with gains this substantial. If you don't have all your receipts, try to reconstruct what you can through bank statements, credit card records, or invoices from shops that worked on the car. One more tip: consider the timing of your sale. If you're expecting a lower income year coming up, it might be worth waiting to keep yourself in a lower tax bracket overall.

The depreciation recapture question is actually really important and often overlooked! Even minimal business use can trigger recapture requirements. The IRS looks at whether you ever claimed ANY depreciation or business deductions related to the vehicle - it doesn't matter if it was just occasional use for car shows or business events. If you claimed even a small percentage as business use on any tax return, you'll need to recapture that depreciation as ordinary income (taxed at your regular tax rate, not the capital gains rate) before applying capital gains treatment to the remaining profit. Regarding spreading the sale across tax years - this is tricky with vehicles since you typically can't do an installment sale unless the buyer agrees to specific payment terms. However, if you can structure it as an installment sale (getting payments over multiple years), you can spread the gain recognition across those years. Just make sure you charge adequate interest and follow the installment sale rules properly. Another timing consideration: if you're close to the end of the year and expecting lower income next year, it might be worth waiting. But remember, the collectible 28% rate is already relatively high compared to regular capital gains, so the bracket management benefit might be less significant than with ordinary income.