@jpnadere wrote:
Thanks for the response! Today we officially settled for $20,000 and after the attorney fees & other expenses I will net around $13,000. I purchased the truck for $55,00, so now my cost basis is $42,0000 I'm assuming.
So let's say I trade in the vehicle in a year and get $50,000, would I still have a capital gain to report even though I did not receive any income? Or is that only if I personally sell the vehicle?
Yes, your adjusted basis is $42,000. While personal legal fees are no longer tax deductible, it is still allowed as an adjustment to basis when you pay legal fees for the acquisition of capital property.
The capital gains applies to both trade-ins and actual sales. As long as you "realize" a gain (make it into a tangible value to you rather than a theoretical value) you owe the capital gains tax. But, as long as you owned the truck for more than one year overall (not since the settlement, but overall), the capital gain is taxed at the lower long term capital gains rates.
