Capital gains tax

Replies to This Discussion

Permalink Reply by Dipu James on February 2, 2010 at 12:55pm

both the questions focus on one major thing ie the CAPITAL ASSET. The trasfer of a capital asset only will lead to capital gains if any, so u should find out whether the Bird or the Car is a Capital asset based on the Income tax laws prevailing in your country.

▶ Reply to This

Permalink Reply by Werner Reisacher on March 5, 2010 at 7:19pm

The way you describe the person's activity, that person is a dealing in cars. In other words, his activities are of a commercial nature and not that of an investor. Dipu is correct, unless the local tax laws indicate differently, trading in goods are commercial profits. It is not unusual for any trading company to keep goods in their inventories for an extended period of time. This does however not change their legal status of a trading business.
Werner Reisacher

▶ Reply to This

Permalink Reply by Bill M Wright on March 5, 2010 at 11:55pm

No, the person or car dealer who's business is selling cars is subject to ordinary income tax ( not capital gains )

BUT lets make this more interesting. Jay Leno a multi-millioniare who makes his living as the Tonight Show Host in USA has invested millions in collectable cars. Can they be treated like an investment?

Yes, but USA law is so complex they have DIFFERENT CAP GAINS RATES for "collectables, fine art & antiques" at a flat 28% vs. "stocks or real-estate" investments depending upon your tax bracket it could be 15% or even O% for low income earners.

A capital asset can be all assets (whether or not connected to a trade or business) except for the following types of items:

1. Stock in trade and other inventory property of the taxpayer;
2. Property held primarily for sale to customers in the ordinary course of business;
3. Depreciable property and real property used in a trade or business; ( Realestate broker vs investor )
4. A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar

Unlike a copyright, a patent is usually a capital asset in the hands of its original inventor or an unrelated party who purchased the patent from the original inventor. A patent might be excluded from capital treatment if the inventor is a professional who is in the business of selling patents to customers. However, exceptions may apply to professional inventors if certain requirements are met.

So, in the USA a CAR DEALERS normal business inventory is called "stock in trade" and subject to normal business taxes not favorable capital gains treatment but if the same car dealer has made a personal investment in a collectable car that he chooses to display on his show room to attract people to his dealership that could be treated as an investment subject to capital gains if he sells it in the future. But Cars are not treated like stock so it's a flat collectables rate of 28% ( which is a very heafty federal tax plus you get hit with a smaller state tax )

You can follow the same logic with a Pet Store Owner or Individual owner of a rare bird, although I doubt that would every be reported on an individual tax return.

▶ Reply to This

Permalink Reply by Werner Reisacher on March 6, 2010 at 1:49pm

Bill,
I love your comments. Thanks for your detailed input. I finally get it, according to the IRS, Jay Leno is a commedian and a collector, but not a second hand car dealer!
Werner Reisacher

▶ Reply to This