Also be aware that any large expense for the improvement of the investment vehicle is not considered an expense and written-off. It is added to the asset's (car's) value in your books. When you sell your car, whether in 1 month or 3 years, you will claim the gain or loss of your entire investment vehicle (including the large improvement expense) at that point.

It is important that this is not your only car. The IRS must be convinced that it is only taken on the occasional trip for a rod run or car show, to the repair shop, a parade, etc. To establish this, you may want to obtain a special insurance policy that has mileage limits on it (and much lower rates).

The business approach is a little different. The concept behind this approach is that you are in the business of buying, possessing and reselling automobiles for profit. You can even obtain income from prize money (car show), and special services rendered like consulting. This is perfect for someone who changes cars frequently (especially sports cars), or is restoring vehicles within a year. It can be formed as a sole proprietorship, partnership, or corporation. However, a sole proprietorship is the easiest of all.

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