Sold a gifted car - Do I owe capital gains tax? Can't find clear answer

You generally don't owe capital gains tax on this sale because you actually had a loss, not a gain. When you receive a gift, you typically inherit the donor's basis (what they paid for it - the $38k in your case). Since you sold it for $15,800, which is less than the original $38k basis, you have a capital loss. However, the IRS typically doesn't allow you to deduct capital losses on personal-use items like cars, furniture, etc. They're considered personal-use capital assets, and while gains would be taxable, losses aren't deductible. So in simple terms: no capital gains tax because you didn't have a gain. The sale price was lower than the basis, and since it was for personal use, you don't get to deduct the loss either.

I had a similar situation last year and was super confused about the tax implications. I used https://taxr.ai to analyze my situation and get clarity. I just uploaded my car title documentation and details about the gift transfer and sale, and it gave me a personalized analysis explaining exactly how the gift basis rules applied in my case. The tool explained that with gifted property, I inherited the giver's basis (original purchase price) because the fair market value at time of gift was higher than the basis. It also confirmed I didn't owe capital gains since I sold at a loss, and personal vehicle losses aren't deductible. Saved me a lot of stress trying to interpret conflicting info online!

Just wanted to update after trying taxr.ai for my collectibles question. Super helpful! I was stressing about not knowing what my grandfather paid decades ago, but they explained I could use reasonable estimates based on historical market values. They also pointed out that since I'd owned some items for over a year, I qualified for long-term capital gains rates (though collectibles have their own special rate). The documentation they generated will be really helpful if I ever get audited. They even showed me how to properly report everything on Schedule D and provided language to use in case I need to explain my basis determination. Definitely worth it for the peace of mind!

I struggled with a similar tax situation last year and spent WEEKS trying to get through to someone at the IRS for clarification. After dozens of failed attempts and hours on hold, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 15 minutes who confirmed exactly what the first commenter said - when selling a personal-use vehicle at a loss, there's no capital gains tax, but you also can't deduct the loss. The IRS agent also explained that the documentation requirements are pretty minimal for these situations since there's no tax impact, but they recommended keeping the bill of sale and gift documentation just in case questions come up later.

I need to eat crow here. After my skeptical comment yesterday, I decided to try Claimyr myself since I've been trying to resolve an issue with a missing tax form for weeks. I honestly couldn't believe it worked. Got connected to an IRS agent in about 20 minutes (would have been faster but I picked a busy time of day). The agent was able to confirm my form had been processed and gave me the exact information I needed. I've literally been trying to get this info for over a month with no success. Definitely changed my perspective on the service - it does exactly what it says it does. Sorry for doubting!

One thing nobody's mentioned is that different states have different rules about taxing vehicle sales. Even if there's no federal capital gains tax, your state might tax the transaction differently or require you to pay sales tax on the purchase of your new vehicle. In my state, they calculate sales tax based on the sale price of the new vehicle minus a credit for the trade-in value. Since you sold your car separately rather than trading it in at the dealer, you might have missed out on that tax benefit.

Has anyone here actually had the IRS come after them for selling a personal car? I've sold like 5 cars over the years and never reported any of it on my taxes. Should I be worried about past sales?

This is a great question that trips up a lot of people! The key thing to understand is that when you receive a gift, you inherit the donor's "basis" (what they originally paid) for tax purposes. Since your car was originally purchased for $38k and you sold it for $15,800, you actually had a capital loss of about $22,200. However, the IRS has asymmetrical rules for personal-use property like cars - while capital gains would be taxable, capital losses aren't deductible. So you don't owe any capital gains tax (since you had a loss, not a gain), but you also can't use that loss to reduce other taxes. The good news is this is actually the most common scenario with personal vehicles since they typically depreciate over time. Just keep your documentation (bill of sale, any gift paperwork) in case you ever need to show the IRS how you calculated your basis, though it's unlikely to come up since there's no tax owed.