How to Protect Your Classic Car Collection from Taxes

One of the oldest myths about owning a car is that it is guaranteed to lose money. Cars always depreciate, and your daily driver (or even your non-daily driver, like an RV tow rig) is in no way an investment. 

However, there are exceptions to every rule. In the case of automobiles, it’s collectibles. Classic collectible cars, unlike their utilitarian counterparts, almost always appreciate in value and have proven to be an excellent long-term investment. 

This is great for you as the seller, but what about the buyer of classic cars? How will you feel about buying and then titling that super rare, export-only 1968 Dodge Charger Hemi R/T for $250,000 when you live in Burbank? 

Let’s talk about how to protect your classic car collection from taxes with a Montana LLC through LLCTLC!

I. The Hidden Price Tag on Classic Cars

The classic car market is huge. It’s probably much bigger than you think: the global classic car market is estimated at around $30–50 billion, but some experts believe the broader collectible vehicle ecosystem, including storage, maintenance, and auctions, may push this number higher. There are an estimated 5 million collectible vehicles registered across the United States; cars considered collectibles make up a staggering 16% of vehicles registered for road use. 

This is a crazy number. Now, here’s the thing: most of these are not six-figure cars. Heck, most of them aren’t mid-five figures, either. The median sale price of a collectible car settles around $27,500. Those are not bad numbers, and most people would certainly not mind saving up to approximately $2,800 in taxes and fees. However, if you’re a significant collector, that price tag probably isn’t the end of the world.   

What we’re looking at here are collections or individual pieces valued at six figures, seven figures, and more. A vintage Mopar? In Burbank, California, at 10.25%, that will amount to $25,625 in sales tax alone, not to mention other fees.

II. Defining a Classic Car Collection

What exactly constitutes a car collection?

Well, there isn’t any set-in-stone number of cars that makes it a collection. Generally, it is accepted that a collection consists of more than one classic car. The real question is what makes it different from a museum?

A car collection is exclusively owned and operated by a private individual. They are buying them for personal gain or pleasure and are not compelled to open the collection to the public unless they choose to.

A museum is built exclusively for the public to use and enjoy. Since a museum is a non-profit, 501(c)(3) organization, it is eligible for tax breaks and donations. Individual car collectors are not afforded the same luxury. 

III. Tax Implications for Classic Car Collectors

First off, this varies considerably from state to state. There isn’t much of a federal issue with car collections until you sell one and actually make money on it. In that regard, we won’t be of any help to you when it comes to tax savings. But there’s not much to worry about at the federal level unless you sell a vehicle and realize a gain, then you could be liable for capital gains tax.

Our services are designed to save money and streamline processes at the state level, resulting in substantial savings. It’s challenging to determine the national average for state sales tax, but the average, including local rates, is approximately seven percent. New York, California, and Illinois are all considerably higher than this, plus the added burden of smog requirements and safety inspections (Montana has neither).

So, at an even 7 percent, the tax on a $100,000 collectible car will be $7,000. The sales tax is 10.25%? Over ten thousand dollars.  

IV. Strategies to Mitigate Tax Burdens

So, what can you legally do to help ease this burden on your collection? Here is our #1 strategy to mitigate your tax burden as much as possible.

A. Registering Vehicles in Tax-Friendly States

Montana is one of five states in the nation that have no sales tax, making it highly desirable for purchasing and registering vehicles.

Montana’s benefits include no sales tax, no personal property taxes, no emissions testing, and permanent license plates for vehicles 11 years of age or older, as well as all motorcycles, boats, and trailers. You will need to continue maintaining the LLC annually, but you will never have to register your vehicle again if it is permanently registered. 

B. Utilizing a Montana LLC for Vehicle Registration

There are only a handful of states left that explicitly allow out-of-state vehicle registrations. South Dakota is the most prolific besides Montana, but there are a couple of reasons why this isn’t your best bet. 

1. South Dakota has a 4% sales tax rate. While still substantially lower than the national average, 4% on a $250,000 Bentley will still cost you $10,000. 

2. You register and title the vehicle as yourself in SoDak, which poses a problem: the title and registration will have your name and your actual address on them. So if you live in Ames, Iowa, your South Dakota registration will say exactly that. But almost every state requires you to register in-state within a few weeks of moving there. Not a huge deal…unless you get caught. Then they might just decide that, since you were avoiding taxes, they want theirs with interest. Unlike Montana, South Dakota registrations may include more personal information unless additional steps are taken.

VI. Legal Considerations

Legally speaking, it is completely legal. The LLC owns the car, not you. You are just driving it, which is no different than driving a company truck or a U-Haul registered to a company, not you. 

VII. Final Thoughts

Classic cars have proven to be a solid investment strategy, unlike buying just about any other type of car. They continue to increase in value year over year, which is great! But sales taxes can really get you.

LLCTLC is your Montana LLC and registered agent pros with years of experience in the industry. We will help you establish your Montana LLC and handle the title and registration paperwork for you, too! Give us a call (877) 913-5100, or email us at info@llctlc.com, and we’ll get you started right now!