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Form 6252 Corona California: What You Should Know
If I Buy a Car for 10,000 with a down payment of 5,000.00, and then sell it for 20,000 with a 5,000 down payment, do I have to include the extra 3,000.00 in the gross profit percentage? I assumed 4,000.00 is the regular contract price. Yes. A sale in which the seller has paid the full purchase price of a motor vehicle exceeds the purchase price if the sale (including any down payment, if any) is to the buyer by more than the amount of the cash-out price of the vehicle. This rule applies whether the purchase price is a lump sum transaction, or a periodic payment. (For example, if a motorist purchases a new automobile for 15,000 with a 15,000 down payment, a later sale for 20,000 would be an installment sale.) The extra 3,000.00 is income to the buyer. This income is generally considered a capital asset in the hands of the buyer and may be included in the purchase price of the vehicle, as long as the sale was not entered into or consummated before the close of the seller's taxable year. For example, assume the following facts are true: The sale price for the motor vehicle is 20,000 with a 5,000 down payment. After closing costs are deducted, the seller has already received 5,000.00. That means the excess 3,000.00 was earned by the seller, and is deemed income to the buyer. The 5,000.00 from the sale is included in the price of the vehicle. The buyer then purchases the vehicle with the proceeds of a subsequent sale for 25,000 with a 5,000 down payment. As a result, the purchase price of the purchaser's car is 22,500 (15,000 plus 5,000), even though the seller paid less than what had previously been paid and the extra cash outlay was not paid out until after closing costs had been deducted. If the taxpayer has been an owner of a business for at least 5 years and the taxpayer files Form 4562 to report business income, does the taxpayer need to include the excess 3,000.00 as a rental expense? No, the excess 3,000.00 is not deductible as a rental expense. It should be included in the gross profit under section 165.
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