Pimp my ride - a tax question

We’re watching Pimp my Ride and the question surfaces:
How can the kids afford the taxes?

For those of you unaware, Pimp my ride is a show on MTV. They will take a young person’s car (18-23 I think is the age limit) and ‘pimp’ it out.

This usually involves a new paint job, new interiors, one would suppose engine work - but it’s rarely mentioned, new wheels, and a lot of fancy extras such as a playstation. flat screen monitors, fishtanks*, disco balls, etc.

It is not unheard of to add $40,000+ to the car.

If the car is in such rotten shape to begin with, it is pretty obvious the kid does not have money. I don’t think the parents can afford it either, from the looks of some shows.

*no lie, a fishtank. With no easy way to remove the fish! :eek:
Imagine parking the car in the hot California sun!

WAGs:

  1. Just because they spend that much on the car doesn’t mean that the kid has received that much “value.” From what you say, some of the cars are practically destroyed.

  2. Whatever the value of the add-ons, they probably pay the kid some money, too, from which s/he can pay da gov.

You sure you can’t get those fish out? When they die that will be grody to the max.

“And check this out, this is my in-dash tank of stinky brown goo. It used to be fish.”

There was one episode where the kids car was discovered to be, basically, the halves of two cars welded together. They bought him a Scion xB and “pimped” that instead.

Anyway, It’s my understanding you only have to pay taxes on the profit from a car when you sell it. If some one GIVES you a car, it’s tax free… but then when you sell it, it’s all profit. In some cases I believe you can write off the depreciation if you sell the car for less than you originally paid for it.

I’ve often wondered about what these kids do about insurance, though.

But wasn’t that what exactly what happened in the Oprah case and people were upset about paying the taxes?

Actually in the Oprah case, I believe the tax code says the giver of the gift is responsible for the taxes.

http://www.fairmark.com/begin/gifts.htm

I’m not following you. Do you mean destroyed beforehand? Because it seems pretty clear that $40,000 has been added. The cars afterwards are not destroyed at all.

No kidding. Those cars look like grand theft waiting to happen.

I am alomst 100% certain that the fish were not able to be removed. They installed some sort of pipe to feed them. We wondered about the stink of dead fish, too.

Not in my state or most others. Washington has a price guide used to determine the value of each car and you pay the tax on that value or the price paid, which ever is higher. This is collected at the time the title is transferred. And the IRS and most states do not consider the money from the sale of a vehicle as taxable income, even if the car was free.

The cars in this case wouldn’t really be changing hands though, no title should be involved. The kids were owners of the car before it was pimped, and are owners of the car afterwards.

The difference is what was added to the car. Now presumably the Playstations, etc that are getting put in the car were bought by the guys doing the upgrades, so any sales taxes should have already been paid, plus I assume they are “donating” the cost of labor.

I’d think of it this way - some guy buys a beat up old car and fixes it up himself in his garage - there’s no special taxes there, he just buys the parts and has at 'er.

The problem is, if you win something as a prize on a show – even if it’s a “prize” for just showing up – it counts as income, not as a gift.

There are strict rules used for determining whether a transaction counts as income or a gift. First and foremost, in order to qualify as a gift, there first has to be some kind of established nonbusiness relationship between the giver and the receiver, i.e. you have to be either friends or family.

This is why, in the case of Oprah Winfrey’s show where she gave out a new Pontiac to everybody in the audience, the fair market value of each car was considered income for each of the recipients, and had to be counted as such on the income tax return of each recipient.

They do, however, consider the difference between the sales price and the original price paid for the vehicle* to be a “capital gain” or a “capital loss”.

*) Actually, it’s not always the price originally paid – it’s techically a value called the “basis”, which is usually the price paid for the capital item but can also be such nebulous quantities as the Fair Market Value for the capital item at the time the purchase was made. So if someone gave you a $10,000 car as a gift, its basis would be $10,000, even though you didn’t pay anything for it.

What if they don’t give you the car, exactly… but sell you the car for $1?