How is a sale Taxed if you have 1000 hours of work iin a build.

In light of all this crazy appreciation of longhood cars...

I've got an offer on the table for the Sunoco RSR Tribute I built - one that makes my ears spin. I don't build them to sell them, but there are offers that sometimes seem too hard to refuse.

PLease - I don't mean for this to be a bash the IRS discussion. Simply would like to know if someone can fill me in on how the sale would be treated in today's tax world. I have a 3 inch thick folder with receipts and have a good idea of "Out of Pocket" cost. But, how do you treat 500-1000 hours of your own labor as a hobbyist ?

Thanks,
Sam G.

I've heard that you just write the hours off as having fun, you can not claim it...maybe I'm wrong. I hope I am!

John

I'm sure there is someone here that can answer this question in more detail but I am quite certain you can not write off your own labor cost.

You should be able to get an independent professional assessment of the work you have done and evaluate it at the average going hourly rate for a pro shop: if that is backed up by receipts for parts and good photo documentation I believe you can build a case.

But then are you essentially getting an income from your labor and subject to tax?

I've been through this. Keep ALL the receipts to offset the profit. Damn taxes are definitely something that we need to take into consideration when selling these cars for a profit. Once you factor giving a third of it to the government, it might make the sales a lot less appealing :(

I'm not a tax expert, but I asked a friend about this once who is (long career with the IRS). He told me that you cannot be compensated for your own labor. I'm sure any CPA could answer this definitively.

John

Ahhh, that's right...now I remember...the profit is taxed as a Capitol gain just like stocks or other invesents.

Also, cost of:
-Storage
-Gas
-Insurance
-Car Washes / Wax
-Travel expenses, mileage rate (every trip you make is promotion of the car)
Maybe we can add up Forum member hours and send you a giant consultation invoice?

**Disclaimer** I am not a tax expert (obviously).

You ONLY need to address that question if you get audited. So, don't sweat the end of the world :)

The same disclaimer applies to me (not a tax expert), but my understanding is that cars are considered a collectible and the long-term gain tax rate on collectibles is 28%, so it's even more painful. You can certainly write off improvements that you paid for during ownership. Not sure about maintenance items (gas, storage, insurance, etc.). You can't add your "sweat equity" to the cost basis.