Do we have to pay tax on trade-in value of car used for business?

[JT167]

My daughter used her old car for self-employment (she also has a regular job).  She drove about 1000 miles for self-employment in 2017, about 10% of the total miles driven in 2017.  In December, she traded the old car in.  She got about $1500 on the trade-in.  She has not used the new car for business, but she might at some point this year.  Do we put in $150 for sales price, since it was used 10% for business?  Does it matter what the purchase price of the new car is?  Does she really have to pay tax on the trade-in value?

[DianeW · Accepted solution]

There is no taxable event on the trade-in.  The cost basis of the new car is reduced for the depreciation used on the old car. To do that, there is a part of the standard mileage rate that is considered the depreciation. Multiply that rate times the business miles each year to arrive at the depreciation used as a deduction on the tax returns.  Then take that total and reduce the cost basis of the new are (first by the trade-in then by the depreciation).

Rate of Depreciation Allowed in Standard Mileage Rate

•  Year(s) Depreciation   Rate per Mile  

• 2017 $0.25  
• 2015–2016 $0.24  
• 2014  $0.22  
• 2012–2013  $0.23

[JT167]

Thank you!

[michaelhennessey]

After 2018 all earlier answers are wrong!