When you trade in your truck, van etc for the same. , you must file a form 8824 like kind exchanges and be figured as followed, I use only 12cent per mile to make it easier to explain:
TRADE IN OF ASSETS
Trade In of Assets
When a business asset is used as a trade-in for similar property, it is considered a like-kind exchange, reportable on Form 8824. Form 8824 determines whether any gain must be reported this year on the disposition of the old asset. Form 8824 also computes the basis in the new asset.
In most cases, you use this basis both for computing depreciation, and for computing the gain or loss on the eventual sale of the new asset. The exception to this rule is a trade-in of a "luxury automobile" that was used only partly for business. In this case you must make an additional adjustment to the depreciable basis of the new vehicle.
You must reduce the basis computed on Form 8824 by the excess (if any) of the depreciation that would have been allowable if the old car had been used 100% for business, over the depreciation that was actually allowable. This reduction must be made whether the taxpayer used the standard mileage rate, or actual expenses. If the standard mileage rate was used As the depreciation equivalent.
This additional reduction only applies to the depreciable basis of the new vehicle. The basis for computing gain or loss when the new vehicle is disposed of is the basis computed on Form 8824.
When completing Form 8824 you should enter 100% of the basis of the old and new asset even if they have less than 100% business use.
Example 1 – Standard Mileage Rate:
Mary bought a van in '04 for $29,000. Her mileage for each year is as follows:
2004 - 8,000 business miles, 12,000 total miles
2005 - 11,000 business miles, 15,000 total miles
2006 - 12,500 business miles, 17,000 total miles
2007 - 7,000 business miles, 10,000 total miles
In '07 she traded it on a new van that cost $35,000.The Dealer gave her a trade-in allowance of 20,000. She Paid an additional $15,000 cash. Mary computes her basis in the new van as shown:
Basis for gain/loss:
~ cost of old van $29,000
* less depreciation allowed:
'04 - 8,000 miles x .12 $ 960
'05,- 11,000 miles x .12 1,320
'06 - 12,500 miles x .12 1,500
'07 - 7,000 miles x .12 840
TotaL (4,620
equals remaining basis…………$24,380
* plus amount paid on new van …….$15,000
* equals basis for gain/loss …………….$39,380
Trade-in adjustment:
Depreciation at 100% use:
’04 – 12,000 miles x 12.. =$1,440.00
’05 – 15,000 miles x 12.. = 1,800.00
’06 – 17,500 miles x 12.. = 2,100.00
’07 – 10,000 miles x 12.. = 1,200.00
Total $ 6,540
* less actual depreciation (4,620)
* equals trade-in adjustment $ 1,920
Depreciable basis:
* basis for gain/loss $39,380
* less trade-in adjustment (1,920)
* equals depreciable basis $37,460
Example 2 - Actual Expenses: Joe bought a car in '05 for $23,000. He used it 80% for business each year. In '77 he trades it in on a new car costing $25,000. The car dealer gives him a $12,000 trade-in allowance on the old car. He finances
the remaining $13,000 cost of the new car.
Joe computes his basis in his new car as follows:
Basis for gain/loss:
* cost of old car $23,000
* less allowable depreciation (8,728)
* equals remaining basis $14,272
* plus amount paid on new car 13,000
* equals basis for gain/loss .... $27,272
Trade-in adjustment:
* depreciation at 100% use $10,910
* less actual depreciation (8,728)
* equals trade-in adjustment .... $ 2,182
Depreciable basis:
* basis for gain/loss $27,272
* less trade-in adjustment (2,182)
* equals depreciable basis $25,090
You can easily determine the depreciation for 100% business use by temporarily overriding the business use percentage on the Car and Truck Expenses Worksheet, or Form 2106 Vehicle
Expenses Worksheet to 100%, and then Quick Zooming to the Asset Life History for that vehicle.
Add the depreciation shown in the "Prior depreciation," and "Depreciation this year" columns on the line for 2007, also include any Section 179 expense elected. Remember to remove the override on the percentage of business use when you’re done.
Frank
Franklin Katz, ATP,PA, CPB
Frank’s Tax and Business Service
120 York Rd
Kings Mountain, NC 28086-3151
(704) 739-4039
Fax: (704) 739-3934
Circular 230 Ruling: Compliance
This email (including any attachments) contains PRIVILEGED AND CONFIDENTIAL INFORMATION protected by federal and/or state law and is intended only for the use of the individual(s) or entity(is) designated as recipient(s). The information contained within this email should not be construed as tax advice. If you are not an intended recipient of the email, you are hereby notified that any disclosure, copying, distribution, or action taken in reliance on the contents of this email is strictly prohibited. Disclosure to anyone other than the intended recipient does not constitute a waiver of any applicable privilege. If you have received this email in error, please immediately notify us by phone at (704) 739-4039 or by email at [email protected] and then permanently delete the original and any copy of this email (including any attachments) and destroy any printout thereof.
TRADE IN OF ASSETS
Trade In of Assets
When a business asset is used as a trade-in for similar property, it is considered a like-kind exchange, reportable on Form 8824. Form 8824 determines whether any gain must be reported this year on the disposition of the old asset. Form 8824 also computes the basis in the new asset.
In most cases, you use this basis both for computing depreciation, and for computing the gain or loss on the eventual sale of the new asset. The exception to this rule is a trade-in of a "luxury automobile" that was used only partly for business. In this case you must make an additional adjustment to the depreciable basis of the new vehicle.
You must reduce the basis computed on Form 8824 by the excess (if any) of the depreciation that would have been allowable if the old car had been used 100% for business, over the depreciation that was actually allowable. This reduction must be made whether the taxpayer used the standard mileage rate, or actual expenses. If the standard mileage rate was used As the depreciation equivalent.
This additional reduction only applies to the depreciable basis of the new vehicle. The basis for computing gain or loss when the new vehicle is disposed of is the basis computed on Form 8824.
When completing Form 8824 you should enter 100% of the basis of the old and new asset even if they have less than 100% business use.
Example 1 – Standard Mileage Rate:
Mary bought a van in '04 for $29,000. Her mileage for each year is as follows:
2004 - 8,000 business miles, 12,000 total miles
2005 - 11,000 business miles, 15,000 total miles
2006 - 12,500 business miles, 17,000 total miles
2007 - 7,000 business miles, 10,000 total miles
In '07 she traded it on a new van that cost $35,000.The Dealer gave her a trade-in allowance of 20,000. She Paid an additional $15,000 cash. Mary computes her basis in the new van as shown:
Basis for gain/loss:
~ cost of old van $29,000
* less depreciation allowed:
'04 - 8,000 miles x .12 $ 960
'05,- 11,000 miles x .12 1,320
'06 - 12,500 miles x .12 1,500
'07 - 7,000 miles x .12 840
TotaL (4,620
equals remaining basis…………$24,380
* plus amount paid on new van …….$15,000
* equals basis for gain/loss …………….$39,380
Trade-in adjustment:
Depreciation at 100% use:
’04 – 12,000 miles x 12.. =$1,440.00
’05 – 15,000 miles x 12.. = 1,800.00
’06 – 17,500 miles x 12.. = 2,100.00
’07 – 10,000 miles x 12.. = 1,200.00
Total $ 6,540
* less actual depreciation (4,620)
* equals trade-in adjustment $ 1,920
Depreciable basis:
* basis for gain/loss $39,380
* less trade-in adjustment (1,920)
* equals depreciable basis $37,460
Example 2 - Actual Expenses: Joe bought a car in '05 for $23,000. He used it 80% for business each year. In '77 he trades it in on a new car costing $25,000. The car dealer gives him a $12,000 trade-in allowance on the old car. He finances
the remaining $13,000 cost of the new car.
Joe computes his basis in his new car as follows:
Basis for gain/loss:
* cost of old car $23,000
* less allowable depreciation (8,728)
* equals remaining basis $14,272
* plus amount paid on new car 13,000
* equals basis for gain/loss .... $27,272
Trade-in adjustment:
* depreciation at 100% use $10,910
* less actual depreciation (8,728)
* equals trade-in adjustment .... $ 2,182
Depreciable basis:
* basis for gain/loss $27,272
* less trade-in adjustment (2,182)
* equals depreciable basis $25,090
You can easily determine the depreciation for 100% business use by temporarily overriding the business use percentage on the Car and Truck Expenses Worksheet, or Form 2106 Vehicle
Expenses Worksheet to 100%, and then Quick Zooming to the Asset Life History for that vehicle.
Add the depreciation shown in the "Prior depreciation," and "Depreciation this year" columns on the line for 2007, also include any Section 179 expense elected. Remember to remove the override on the percentage of business use when you’re done.
Frank
Franklin Katz, ATP,PA, CPB
Frank’s Tax and Business Service
120 York Rd
Kings Mountain, NC 28086-3151
(704) 739-4039
Fax: (704) 739-3934
Circular 230 Ruling: Compliance
This email (including any attachments) contains PRIVILEGED AND CONFIDENTIAL INFORMATION protected by federal and/or state law and is intended only for the use of the individual(s) or entity(is) designated as recipient(s). The information contained within this email should not be construed as tax advice. If you are not an intended recipient of the email, you are hereby notified that any disclosure, copying, distribution, or action taken in reliance on the contents of this email is strictly prohibited. Disclosure to anyone other than the intended recipient does not constitute a waiver of any applicable privilege. If you have received this email in error, please immediately notify us by phone at (704) 739-4039 or by email at [email protected] and then permanently delete the original and any copy of this email (including any attachments) and destroy any printout thereof.
