Hello everyone, I am trying to figure out what would be the tax treatment, if you find out that your car that you are trying to sell to this person needs a lot of work, and you just say, "here just take the car its yours". What is the tax treatment in this case? I am thinking abandonment or donation.

Assuming this is a private sale then there is no tax issues at all unless you sell the car at a gain (i.e. you sell it for more than you paid for it). If you sell for less than you originally paid you do not report the sale at all (you can't take a loss on the sale of personal property). If you donate the car to a charity, or sell it them for less than its fair market value, then you can deduct the difference as a charitable donation, but of course only if the party you sell/donate the car to is a recognized 501c3 charity.

If you receive no money, it is a gift, but there are no gift taxes because the amount is well below the $13K exemprion amount.

You both raised good points. We assume that the seller has given his car away because it would cost him a lot to bring it back to sell-able condition. So he decided to just give it away to that buyer. So now is it a gift or donation? It wouldn't be a donation since the receiving party is not a charity organization. Can we assume that it is a gift in this case?

The seller also gives the title to the buyer, so the buyer gets the car for free. So now the seller can deduct the tax basis as ordinary loss? If we assume it is a gift or abandonment?

There will be NO tax deduction in either case.