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Joined 1 year ago
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Cake day: August 14th, 2023

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  • It seems the confusion is that you think whatever the total amount the item sells for is a “gain.” A gain is the profit - the difference between what you sell the asset for and your cost basis in the asset.

    In your car example, the cost basis is 50000. If you then sell it for 10000, you then have a capital loss of 40000. You don’t pay taxes on the 10000 because it is not earned income and it is not a gain - it’s part of your original capital. And you obviously don’t pay taxes on the 40k loss. And since it is a car, you can’t even deduct the loss.

    If you sell the car for 55000, then you have a gain of 5000 (the difference between your cost basis of 50000 and what you sold it for). You are taxed on the capital gain of 5000, not on the entire 55000.