won a car - now what?

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So I won a car from the United Way in a giveaway for persons who doubled their contributions via payroll deduction. The car is being given away by the local Nissan dealer and I am told I can pick it up anytime. I am told I will be given a 1099 at year end. What is this going to cost me percentage wise? Will I have to pay twice on the car, once at reciept and again as income on this year taxes?


Thanks,


Charles

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There is no way I could sell this car for sticker price.

ctbook (Feb. 17, 2008 @ 5:17p) |

I believe you won't incur federal tax penalties for 2008 as long as you withhold (or pay ahead) at least as much as your... (more)

janwad (Feb. 17, 2008 @ 9:12p) |

Don't buy it to resell it, you would pay 7% sales tax even if you just owned it for one day.

How about advertise it on cr... (more)

tonysavealot (Feb. 18, 2008 @ 9:25a) |

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

Wow - cool win

The amount of income tax you will pay depends on your tax bracket - how much you're going to earn for 2008, etc. I would guess at least 25% of the Fair Market Value would be due to the Federal Govt (IRS), plus whatever rate you might pay for State income taxes - if any. You shouldn't have to pay anything to pick up the car (maybe the dealer would collect for license plates, etc). When you file your 2008 income taxes in 2009, you will have to include the Fair Market Value of the car (should be on the From 1099) and pay whatever taxes are due. If you owe too much, you could be subject to an underpayment penalty (basically interest). My sister won a car at her church raffle a few years back.

I won a car from the Race for the Cure in Washington, D.C. and sold it back to the dealership for about $3,000 less than the value of the car (because even though I didn't leave the lot with the car it was consided a used car - one owner on papers). I made the mistake of not paying the car tax right away and ended up paying a penality. Usually tax is more like 33 percent.

So I think I will have to pay sales tax (7%) on the car when I pick it up. Then I should pay the tax based on their FMV of the car? Like 30%? I am thinking that their idea of FMV may be inflated since the dealership is basically donating this car to charity and the charity has awarded it to me. I read somewhere that I can dispute the FMV on the 1099 that they will be giving me. I can't understand why it would be at the end of the year though...

Does this sound correct?


Thanks,

Charles

ctbook said: So I think I will have to pay sales tax (7%) on the car when I pick it up. Then I should pay the tax based on their FMV of the car? Like 30%? I am thinking that their idea of FMV may be inflated since the dealership is basically donating this car to charity and the charity has awarded it to me. I read somewhere that I can dispute the FMV on the 1099 that they will be giving me. I can't understand why it would be at the end of the year though...

Does this sound correct?


Thanks,

Charles


Just remember that you can also write-off any sales tax you pay on the car, so that will help with the 30% you have to pay for the taxes.

How do you write off sales tax?

Congrats to you. Where do you live? I have won 2 cars in Houston, TX, and 1 in a La. casino that I took $10,000 cash option instead.

I was forced to pay sales tax on 1st TX car(1988) and got a refund from the state later. On last car (2004), I pointed out a printed copy of the state comptroller's online rules on sales tax (only $10 gift tax) on cars won. The tv station sponsor delayed closing on the car while they checked with corp lawyers and 5 days later I got it without paying any tax.

Yes, you must pay IRS tax. Keep copies of the local paper car ads to dispute the value on 1099.

Well, for better or worse I took $9500.00 for the car.

The owner of the dealership said right away that to him the card was worth $9500.00 and did I want that option. I said yes and we went to the finance mgr's office. There they had a bill of sale made out for me to be selling the car to them for $9500.00. The $9500.00 payable without sales tax included. Their plan was to give me a car for $9500.00, show the $4300.00 loss on the books and then buy the car back for that same amount. I said that instead I want the car...in that scenario I was told that I have to pay sales tax since the original $9500.00 had that figured in. I did not sign the bill of sale, took the check and had a notation added to the bottom of the bill of sale that I would be receiving a 1099 for $9500.00 that the owner of the dealership initialed.

Why all the smoke and mirrors?

I decided that it wasn't worth all the hassle of paying the tax and then trying to sell the car later. I still don't really understand the tax consequences here.

Your write off sales tax by itemizing at the end of the year on your Federal Return for 2008, assuming Congress allows sales tax as a deduction for 2008.

Congrats on the car.

Assuming also that you are able to itemized your deduction. Itemizing your sales tax is in lieu of your state witholding deduction on Schedule A. Nice problem, I wish I had it. Congats!

Congrats on winning the car

Basically you will show this income as "lottery winnings". You normally can deduct gambling losses from the winnings - but in this case it appears you did not have any losses.

One time I won a dinner for 2 to a pretty nice Chinese restaurant.

cameron2003 said: One time I won a dinner for 2 to a pretty nice Chinese restaurant.

Did they send you a 1099?

nearly 40% but perhaps there are ways to mitigate the FMV. for instance have the door kicked in before you get it. this would substantially drove the FMV or have it keyed. or have the dealer ship drive it around the state a few times.

then the FMV would heavily decrease due to abuse/use and you'd get a lower sting.

donate it to charity directly in your name do you really need the car?

rigor said: nearly 40% but perhaps there are ways to mitigate the FMV.
I think a more approved technique is getting a lower quote on the exact same model from another dealership (after haggling, etc). Then you've got the docs for the IRS to substantiate FMV was lower than the first dealership reported.

ctbook said: Well, for better or worse I took $9500.00 for the car.

Exactly what I would have done, unless I actually wanted the car.

neeuqc said: I won a car from the Race for the Cure in Washington, D.C. and sold it back to the dealership for about $3,000 less than the value of the car (because even though I didn't leave the lot with the car it was consided a used car - one owner on papers). I made the mistake of not paying the car tax right away and ended up paying a penality. Usually tax is more like 33 percent.

"Used" cars are normally determined by mileage, and/or title & license. I suspect your car was resold as a new car.

laltopi said: Congrats on winning the car

Basically you will show this income as "lottery winnings". You normally can deduct gambling losses from the winnings - but in this case it appears you did not have any losses.


If this is the case, you have almost a year to get some losses. Start saving lottery tickets that are losers and go to the OTB and get losing betting tickets. You can claim losses up to your winnings. I don't know if you can consider this lottery winnings or not.

On a side note, if you were told you were not going to receive a 1099, would you report it? Just curious.

ctbook said: Well, for better or worse I took $9500.00 for the car.

The owner of the dealership said right away that to him the card was worth $9500.00 and did I want that option. I said yes and we went to the finance mgr's office. There they had a bill of sale made out for me to be selling the car to them for $9500.00. The $9500.00 payable without sales tax included. Their plan was to give me a car for $9500.00, show the $4300.00 loss on the books and then buy the car back for that same amount. I said that instead I want the car...in that scenario I was told that I have to pay sales tax since the original $9500.00 had that figured in. I did not sign the bill of sale, took the check and had a notation added to the bottom of the bill of sale that I would be receiving a 1099 for $9500.00 that the owner of the dealership initialed.

Why all the smoke and mirrors?

I decided that it wasn't worth all the hassle of paying the tax and then trying to sell the car later. I still don't really understand the tax consequences here.




To make it simple, I use 30% instead of 33% tax rate
-----------------------------------------------------


Basically, you will pay $2850(30% of $9500) to IRS instead of $4140 (30% of $13800) for winning this car.

Your net gain will be $6650 (9500-2850) instead of $9660 (13800-4140).

To avoid 7% sales tax ($966), you gave up $3000 of cash.


Congratulations to the car dealer !!

They receive $4300 loss deductible + a lot of profit from this car.

If it is lottery winnings, go to a local dog track and just pick up all the nonwinning tickets from the floor. You help the dog track out with their litter and you can say you lost all that money gambling.

There is no way I could sell this car for sticker price.

I believe you won't incur federal tax penalties for 2008 as long as you withhold (or pay ahead) at least as much as your taxes were in 2007. If you pay/paid $10,000 for 2007 in total federal tax, be sure they get that much in withholding or by paying quarterly estimated tax for 2008. Even though your 2008 final bill will be higher than your 2007 tax bill, you can wait to pay the excess tax until April 15, 2009.

The FW way to would have been to do all the math before deciding which options to take. We could have had a lot of fun figuring it out for you, you know

ctbook said: There is no way I could sell this car for sticker price.

Don't buy it to resell it, you would pay 7% sales tax even if you just owned it for one day.

How about advertise it on craigslist, that you will sell the winning certificate for $10'500
and you still would made $1000 more than what you did now.

Most state have laws that they have to state the cash value instead of taking the car, does yours?

It sounds the car dealer made as much money as you, they are so sleazy that you need to bring a professional negotiator with you.



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