What's New in Taxes
Get the best tax deal on that new business car
When you shop for a new car or truck, it is often tempting to accept the car dealer's offer to take your old vehicle as a trade-in, so that the exchange of vehicles is wrapped up in one transaction.
But if you have your own business, and if you are buying or selling business vehicles, you need to consider the tax consequences before making final plans to trade in your old car or truck.
First, calculate your tax basis in the vehicle by taking your original cost and subtracting all tax depreciation you have deducted. Then check the market value of your old vehicle - would you have a profit or a loss from a sale? If you're facing a taxable gain, you are probably better off from a tax standpoint trading the vehicle in on the new one. The result: No gain is required to be reported on your tax return.
On the other hand, if your tax basis is more than the market value, consider selling the vehicle yourself. The sale of the vehicle will result in a loss which can be deducted on your tax return. A word of caution: Selling your old vehicle to the same dealer who sells you the new vehicle will be treated by the IRS as a trade-in. No loss deduction is allowed if the vehicle is traded instead of being sold.
Special rules apply if the old vehicle was used less than 100 percent for business or if the standard mileage allowance was used to figure your tax deduction in prior years.
Calculate your tax basis before bargaining for a new business vehicle. Advance planning is the key to lowering the amount of income tax you pay.
Please call us if you would like assistance.