Sale of Business Auto/Recapture After Trade-In

[birddogtb]

I was hoping to clarify a position on a gain/loss on sale of a business auto as well as the basis of the new auto given the changes in the 2017 Tax Cuts and Jobs Act.

Auto A used 100% for business was purchased for $44,000 in 2019, 100% business.

Total Deprecation is $10,000 making my adjusted tax basis $34,000.  This car was included in trade for another 100% business auto in 2022. Trade-in value on Auto A was $28,000 and the new car was $70,000. I had a loan on Auto A, was underwater, and had to pay $7,000 out of pocket to close the loan on the old car.

Questions:

- does the cash paid to pay off the old loan affect basis of the new car?  basis/capital gain of the old car? or is it as easy as:

- $34,000 basis minus $28,000 trade = $6,000 capital loss for Auto A

- Depreciable Basis in the new auto, Auto B, is its purchase price of $70,000

- There was no cash paid on the new auto, fully financed.

The like kind exchange rules were a bit different when calculating the basis of a new business auto (basis, cash/boot)  and wanted to be sure I was in line with the new tax rules concerning gain/loss on the trade as well as basis of new car.

Thank you for your help.

[Vanessa A]

does the cash paid to pay off the old loan affect basis of the new car?  No.  Under the Tax Cuts and Jobs Act, when you trade in a vehicle, that vehicle is considered sold and does not affect the basis of the new car.  

  basis/capital gain of the old car? or is it as easy as:

- $34,000 basis minus $28,000 trade = $6,000 capital loss for Auto A  Yes, it is this easy. This is correct.  You have a loss of $6,000 on the old car.  The fact that you were underwater and had to pay $7,000 does not affect anything. The $7,000 was to cover the loan and did not affect the value of the car.  It just means you financed a car that had its value fall faster than your loan on the car.

- Depreciable Basis in the new auto, Auto B, is its purchase price of $70,000- Yes, the purchase price of the new auto is the depreciable basis.

- There was no cash paid on the new auto, fully financed.  When you finance a vehicle, house or other asset, it is the same as paying cash when it comes to the basis or any types of deductions.