Tax Advantages of Classic Car Investment

Owning a classic vehicle isn’t just a style statement; it can be a smart financial decision, too. From classic car tax exemptions to favorable capital gains treatment, collectors and investors are increasingly recognizing that well-chosen classic or custom vehicles can serve as appreciating assets, not just garage eye candy.

But here’s the twist: not every vehicle with vintage styling qualifies as a “classic” in the eyes of the IRS or your state’s tax agency. And if your ride is a newly built custom masterpiece like the Modern Classics we craft at Vintage Modern, it’s even more important to understand how it’s taxed, valued, and protected. 

Let’s break down the facts and explore how you can make your vehicle work harder for your financial future.

When Does a Car Become a Classic for Tax Purposes?

Classic car tax varies by state and tax category. There’s no single, nationwide definition of a classic car for tax purposes. However, most U.S. states define a vehicle as classic or antique once it reaches 20–25 years old. This classification may provide eligibility for reduced registration fees, emissions exemptions, or special license plates.

For example:

• California considers a car historic at 25+ years, but it must not be used for daily transportation.
  
• Texas allows “classic” registration at 25 years with limitations on driving use.
  
• New York defines vintage vehicles as those over 25 years old used solely for club activities or exhibitions.

But Age Isn’t the Only Factor

To qualify for certain classic car tax exemptions or benefits, a vehicle may also need to meet specific criteria:

• Limited production or historical significance
  
• Maintained in original or near-original condition
  
• Infrequently driven or not used as a daily driver
  

These factors are crucial because many tax breaks, such as reduced fees or emissions exemptions, only apply to vehicles that fit a specific vintage profile.

How This Applies to Modern Classics

While Vintage Modern builds are inspired by traditional classics, they’re engineered using modern 2025 components. This means they typically won’t qualify for:

• Antique or vintage vehicle plates
  
• State-level classic car exemptions
  
• Federal collectible tax treatments (automatically)
  

But that doesn’t diminish their value.

In fact, Modern Classics by Vintage offer a different kind of financial appeal: one rooted in scarcity, craftsmanship, and long-term desirability. With proper documentation and intent, they can still qualify for capital gains treatment if sold as investments, and they can absolutely be included in a smart estate or asset diversification strategy.

Understanding Classic Car Tax Exemptions

Classic car ownership can come with more than bragging rights; it may also unlock certain tax and registration perks, depending on where you live and how your vehicle is classified. While the IRS doesn’t offer sweeping federal tax breaks just for owning a classic, many states have created incentives to preserve automotive heritage. 

Registration and Emissions Relief

Registering a traditional classic car or restomod can be challenging. Some states do offer registration and emissions relief for vehicles officially registered as classic or antique. These benefits may include waived emissions testing, annual inspections, and reduced registration fees. 

However, eligibility varies by state and is not governed by federal law. Typically, the vehicle must be a certain age, often 20 to 25 years old, and must not be used for daily commuting. 

In many cases, mileage limits also apply. 

For example, in Virginia, antique vehicles are exempt from emissions inspections and enjoy lower registration fees.

Federal Tax Considerations

The IRS doesn’t classify “classic cars” for exemption purposes. But there are tax benefits if the vehicle is purchased or sold as a collectible investment rather than a personal-use item.

Classic Car Capital Gains Tax: What You Should Know

If the IRS classifies your vehicle as a collectible held for investment and you sell it for more than your adjusted cost, the profit may be taxed at a rate of up to 28% which is higher than the 0–20% range applied to typical long-term capital gains.

What Triggers Taxable Gains?

You may owe tax if:

• The car was held as an investment, not for daily use
  
• You sell it at a higher price than you paid + improvements
  
• The transaction wasn’t part of a like-kind exchange (these only apply to real estate post-2017)

Implication for Modern Classics

If you commission a Modern Classic by Vintage and later sell it as a collectible, you may be subject to classic car capital gains tax. Accurate documentation of your purchase, upgrades, and sale price is key to understanding what you owe and minimizing surprises during tax season.

Tip: Consult a CPA or tax attorney experienced in automotive collectibles.

Additional Tax Considerations for Classic Car Owners

Beyond capital gains and registration perks, classic and custom vehicle owners may benefit from lesser-known tax opportunities, especially when the car serves a purpose beyond personal enjoyment. Whether it’s part of your brand image or used in day-to-day business operations, your classic vehicle could offer deductions that help offset ownership costs. But to take advantage of these opportunities, you’ll need to meet specific IRS requirements and keep thorough records.

Business Use Deductions

According to the IRS Topic No. 510, if your vehicle is used for legitimate business purposes, such as branding, promotional content, or executive transportation, you may be able to deduct associated expenses like depreciation, insurance, and mileage. 

To qualify, however, the IRS requires clear evidence of business intent, detailed documentation, and a clear separation between personal and business use. Without this, deductions could be denied or flagged for audit.

Gifting & Estate Transfers

Gifting a high-value collectible like a custom or classic vehicle can trigger federal gift taxes if it exceeds the annual exclusion limit of $18,000 per recipient (2024). 

For larger transfers, the lifetime federal gift and estate tax exemption, currently $13.61 million, applies. This unified exemption allows tax-free transfers during life or at death, but it’s scheduled to drop to around $6.8 million on January 1, 2026, unless Congress extends the current law.

To protect the value of your Modern Classic during transfer, consider obtaining a professional appraisal, maintaining records of upgrades and provenance, and exploring trusts or family LLCs as options for managing ownership.

Even high-profile collectors and celebrities are taking a strategic approach to how they buy, insure, and pass on their classic vehicles.

An estate planner familiar with collectible assets can help structure the transfer to reduce taxes and preserve long-term value.

Agreed-Value Insurance for Tax Protection

Many collectors use agreed-value insurance, which guarantees the car’s worth is pre-determined and locked in, unlike standard policies that only cover depreciated value. 

This helps in tax reporting, estate planning, and claim settlements, especially when the vehicle’s market value is hard to establish.

Are Classic Vehicles a Good Investment?

Yes, if you know what you’re doing. However, not every old car goes up in value. To be a sound investment, a vehicle should be:

• Limited in production
  
• Well-maintained or custom-built with quality
  
• In-demand among collectors or enthusiasts
  

Classic 4x4s, for example, have retained strong value over time. This article on the evolution of classic 4x4s explains why they continue to attract collectors and off-road enthusiasts alike.

Why Modern Classics Still Make Sense

While Modern Classics may not meet every traditional requirement for antique tax classifications, they offer classic-inspired, high-end materials and build quality, modern safety features and technology, and long-term desirability for today’s buyers.

Each build is a precision-engineered machine crafted with today’s road standards in mind. You get the timeless look of an icon, combined with reliable drivability, modern safety features, and superior craftsmanship built into every component, from the chassis to the stitching.

Modern Classics also hold strategic value for collectors and enthusiasts. Their limited production, quality control, and emotional appeal make them attractive in a market increasingly saturated with mass production.

In short, these vehicles aren’t valuable because they’re old. They’re valuable because they’re rare, intentional, and built to last. Inspired by legendary vehicles like the original Ford Bronco, when you invest in a Modern Classic by Vintage, you’re not just acquiring a car; you’re securing a driving experience that holds its own in both style and substance.

Conclusion

Navigating the tax advantages of classic car investments requires more than just a passion for vintage wheels. From understanding state-specific exemptions to managing capital gains tax and incorporating estate strategies, the path to financial benefit is paved with planning.

And if your build happens to be a Modern Classic, your return is more than just financial. It’s emotional, experiential, and timeless.

Thinking about owning or building a custom classic?

A Modern Classic isn’t just about the drive; it’s about long-term value. From tax-smart ownership to investment potential, the right build offers both emotional reward and financial return. Contact our team today to start your journey.

Disclaimer:

The information provided in this article is for general informational purposes only and does not constitute legal, tax, or financial advice. Tax laws and vehicle classification rules vary by state and can change over time. Readers are strongly encouraged to consult with a licensed tax professional, CPA, or legal advisor who specializes in collectible or custom vehicle ownership before making any financial decisions related to classic car investments. Vintage Modern does not provide tax or legal advisory services.

Frequently Asked Questions