A California man whose 1957 Chevy Bel Air was stolen in 1984 has been reunited with his car after 30 years. The car, bound for Australia when recovered, had been fully restored in the interim.
Obviously the car is worth more now than it was when stolen due to the restoration. A loss from theft is deductible on a federal return, so is the converse true? Is this man's gain from theft taxable income to him?
My guess is that it would be a capital gain if he sells the car.
That would be my guess, too. On the other hand if he wrote it off as a casualty loss when it was stolen, it might be a different story.
Yeah, I was wondering about that -- does he have to pay back the tax deduction from 30 years ago? Or maybe his basis in the car is now considered zero, since he wrote it off, and his gain will be the full value of the car.
On Mon, 24 Feb 2014 17:36:23 EST, Barry Margolin wrote in
That would be how I would play it.
That is what I would do, but I am just using common sense and I am not a tax expert (I'm not sure if those are mutually exclusive) .
There's nothing wrong with using common sense for tax issues. You just have to realize that common sense has its limitations.
It's probably a reasonable defense against a tax fraud accusation, but you'll still owe penalties and interest if you're wrong.
This is handled like any other recovery. He has income to the extent that he benefited from a theft loss deduction. I don't know what the rules were back in the 50s but let's assume that after the limitation rules were followed, he had total itemized deductions that included $X for the theft and that his itemized deductions exceeded the std deduction by more than $X. He declares $X of income on Line 21 of his tax return for the year of recovery. It doesn't matter what the FMV of the car is.
If he did not get any tax benefit from the theft, then there is nothing to declare as income in the year of recovery. His basis in the vehicle is what he paid for it ($375) plus any improvements he made to it before it was stolen. Upon the sale, he would have a long-term capital gain.
The courts say that if you were wrong, but didn't have a good faith belief that you would win if it came to court, you could indeed be convicted of tax fraud. I've seen it happen to tax lawyers.
Well, it was in Chicago, so they may have a different idea of what free speech means than I do.
I'd expect tax lawyers to be held to a higher standard than ordinary taxpayers. Or if you consulted with a tax lawyer, but went against his advice and used your "common sense" instead, I could see being convicted.
Not sure what free speech has to do with it. Unless you're talking about tax protesters -- they're almost always kooks, making up their own ideas about the law, not making good faith attempts to pay the correct tax.
What does common sense have to do with what is in the tax code. From what I can tell, common sense enters the picture only when not following it BADLY screws up painful conflicts amongst various sections of the code.
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