The short answer is that in most cases, the IRS and your local tax agencies expect tax payments for gains received on your larger transactions. While the details of private sales transactions may be difficult for tax agencies to track, legally you are obligated to report your capital gains on items you sell and to pay local taxes on items you purchase.
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Tax obligations when you sell a car
If you sell a personal vehicle (car, truck, motorcycle, boat or other vehicle for personal use) for a loss, the IRS is generally not interested in the transaction. However, if you sold the car for a profit, you should report that profit as a capital gain. An IRS Schedule D is used to report your capital gains. If you put a lot of permanent work into improving the vehicle, you may be able to deduct some of those costs from the gain to help reduce your tax obligation. If you sell quite a few vehicles, the IRS may be triggered to believe you are in the professional car sales business. If you are in the car sales business, you’ll want to report your taxes and business taxes appropriately to avoid issues with the IRS.
Tax obligation when you buy a car through a private sale
When you purchase a vehicle through a private sale you must pay the associated local and state taxes. In most states, you’ll need to bring your Bill of Sale and or signed title to the Department of Motor Vehicles (DMV) or motor vehicle registry agency to pay your taxes and obtain your registration, new title and plates. If you purchased the vehicle in another state, you should pay the sales tax in that state and bring proof of payment to the DMV when you register the vehicle in your state. In most cases, that will fulfill your tax obligation. However, if you do not bring sufficient documentation, they may ask you to pay sales tax in your state, too.
What are my tax responsibilities if I privately sell my home?
Like most properties, homes are considered an asset and you may have a tax obligation if you sold your home for a gain. However, even if you did not sell your house for a gain or used the money to pay off your mortgage, you are still obligated to report it. If you sell your second home or vacation home, there are also associated tax obligations. To learn more about selling your home, see IRS Topic Number 701 – Sale of Your Home.
Do I need to pay sales tax on a house I buy using cash?
If you inherit a home or buy a property using cash, often there is not a sales tax obligation until you sell the property and realize a gain. But you may want to check with a lawyer to find out what (if any) local or state obligations may apply to your situation. Of course, you are obligated to pay associated property taxes.
Do I need to pay taxes if I buy or sell other types of property?
In most cases, the IRS and your local government agencies are concerned about any capital gains you make. Whether everyone claims or tracks them or not is suspect, but in the end, yes, your capital gains may be considered taxable income. If you buy something and sell it for more, that is a gain. In a sense, a private transaction is not much different than a retail store or pawn shop buying low and selling high in the eyes of the IRS. Like other assets, you can also deduct losses. So, unless you are buying or selling volumes of items, your tax obligation will likely be minimal.
If you have questions about your tax obligations after a private property sale, ask a tax lawyer.