Trading in a vehicle and buying a new one

[1Larry54]

In 2016 I bought a new car, for which I use about 50% of the time for my LLC business.  In July, 2019 I traded in that car for a new one, of the same make and model.  I am confused with both the Turbo-Tax layout and questioning criteria, and the new tax law that seems to say that this transaction was not a Like-Kind Exchange because it is no longer regarded this way.  So is it a qualified Like-Kind Exchange or not? If not, the entire Turbo-Tax process is quite confusing.

I can submit all the numbers for both vehicles, if someone can give me some solid, reproducible advise. 

[Anonymous_ · Accepted solution]

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@1Larry54 wrote:

So is it a qualified Like-Kind Exchange or not?

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No, after tax reform (the TCJA), like-kind exchange treatment (Section 1031) is only available for real property. 

See https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-ti...

You have to treat the trade-in as a sale and report it as such on your return and then enter the new car as a new asset in TurboTax.

[Michsmi08]

If I use the trade in for a sale and the new one that was purchased was for my wife for personal use and I used her old car for my business....... Do I enter this the same way? TIA

[Anonymous_]

@Michsmi08 Yes, if you converted your wife's car to business use.

[carson2246]

I'm with you.  I get no Like Kind for vehciles, but it appear the gain on a trade is the business use portion.  The trade in basis and prior standard mileage depreciation portion seem to have no effect on the gain.

[carson2246]

Your reply "enter the car as a new asset".  As I see it you add a vehicle in the vehicle portion of business expenses.  Do you add so where else?  

[ThomasM125]

The trade in value would be considered the sales price of the business vehicle given up to acquire the new vehicle. The difference between that value and the cost of the vehicle, less depreciation, will be the gain or loss that you would recognize on your tax return for the disposition of the vehicle.

You will add the new vehicle to be used in the business in the "Business Vehicle Expense" section which is found where you enter your business expenses.

[nucleareng]

Not sure I understand the previous answers. But my situation is, I purchased a vehicle for my wife's business in 2015. Every year since then I have taken the standard mileage deduction but no depreciation. I recently traded in that vehicle for a new one. How do I determine the cost basis for the vehicle I traded in? Business use of her vehicles is roughly 50/50 business and personal.  Should I depreciate the new vehicle? any help would be greatly appreciated.

[RobertG]

Think of it this way.

You sold the old business vehicle for the amount of the trade in value you were given.  

Your basis in the old vehicle is what you paid for it less the depreciation portion of standard mileage rate claimed.

The basis in the new vehicle is the cost of the new vehicle.  The amount you received for the old vehicle is not relevant, because there is no exchange, just a sale and a purchase. 

[daveboyer]

I hope you can help me.  This is my situation:  

I have a bit of a unique problem and I am trying to solve it.  I have talked to three Turbo Tax experts online, and none of them could help solve my problem.  I sold my old car on 8/24.  I am an independent contractor who uses a personal vehicle less than 50% of the time for business.  I have always taken the standard deduction for mileage and I have never used form 179 to depreciate the vehicle in any year.  As I am itemizing my expenses for schedule C, for my vehicle expenses, I am being asked to detail the information about the car I am taking out of service.  The dealership offered me $500 for my old car.  I used it 24.71% in 2020, meaning $124 applied as a business gain, which I entered.  Then, I get taken to a screen that asks me about "vehicle Cost".  I am assuming this was the original cost of the vehicle, when I bought it in 2008, so I entered that cost of $35000.  I then got a screen to determine basis of loss/gain.  I originally bought this car for $35000, and traded in a car that was worth $23000 (new in 2003), so I list my gain as $12000.  The next screen asks me for my prior depreciation equivalent, which is $31116.  The next screen tells me that my Gain on Sale is $124.  When I go to my main page of income and expenses, it lists the "Sale of Business Property" as $5808.  Nobody can tell me why that number is popping as income, and nobody can tell me what I am entering wrong.  Can you help?

[AmeliesUncle]

If the business percentage varies from year to year, you can NOT report the sale in the vehicle section.  Say you converted it to personal use or something like that.

You then need to MANUALLY calculate some things and report the sale in the "Sale of Business Property" section, or go to a tax professional.

In your case, when you go through the vehicle section and say you converted it to personal use (and before you actually report the sale in the "Sale of Business Property" section), check if the "Sale of Business Property" shows $0.  If it doesn't, it may be getting a number from elsewhere on your return.