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Sam,
I'm having a tough time with all this. Unless this was a really high dollar value muscle car (nearing or into 6 figures), I doubt that the IRS would pay any attention, especially if there were no 1099's involved. Many, many vehicles these days sell in the $30K - $50K range so it hardly raises an eyebrow. Who's going to ask how long they've owned the car or how much they have invested in it?
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I'll quote myself from an earlier post: tax planning is encouraged, tax avoidance is unlawful. Just bec/ you don't think you'll get caught, doesn't make it right. I'm not sure if a situation like this constitutes fraud, but if so, keep in mind that there is no statute of limitations on fraud. So, that '7 year window' that everyone thinks they have - is not not 7 years!
The best tax advice I gave to a fellow sYc member was to simply determine your price, calc the cap gain tax, and add that amount to your price. There are some netting down / grossing up calculations in there, but it's the best way to get your number & still pay your taxes.
BTW, 67rs, if there's more to this discussion than we've covered, by all means enlighten us.