AFIP Taxation and Estate Planning in F&I Flashcards

In the context of vehicle sales, which tax is typically calculated as a percentage of the vehicle's purchase price and collected at the time of sale?

Answer: Sales tax

Sales tax is assessed on the vehicle's purchase price at the point of sale and varies by state and sometimes by county or city.

A customer purchases a vehicle in a state without sales tax but registers it in a state that has one. Which tax may apply?

Answer: Use tax

Use tax applies when a taxable item is purchased out of state but used in a state with a sales tax, preventing tax avoidance through cross-border purchases.

For federal income tax purposes, interest paid on an auto loan is generally:

Answer: Deductible only if the vehicle is used for business purposes

Personal auto loan interest is not deductible, but if the vehicle is used for business, the interest may be deductible as a business expense.

What is a 'step-up in basis' relevant to estate planning for vehicle or financial asset transfer at death?

Answer: The adjustment of an inherited asset's tax basis to its fair market value at the date of death

When an asset is inherited, its cost basis is stepped up to the fair market value at the date of death, potentially eliminating capital gains tax on appreciation.

Under IRS rules, what is the standard mileage rate used for?

Answer: Determining the deductible cost of using a personal vehicle for business, medical, or charitable purposes

The IRS standard mileage rate allows taxpayers to deduct a set cents-per-mile amount for business, medical, or charitable driving in lieu of tracking actual expenses.

Which estate planning tool allows an individual to transfer assets directly to beneficiaries while avoiding probate?

Answer: Revocable living trust

A revocable living trust holds assets during the grantor's lifetime and transfers them to beneficiaries at death without going through probate court.