Trade of Two Cars

[Xandilunas]

I am recording two cars traded with no cash, with the car given up being fully depreciated (prior special depreciation). I figure this would mean no gain and a carried-over basis. Is this only possible by disposing of the old asset and adding the new one in Lacerte? I am trying to get the accumulated basis to stay the same and not recognize additional depreciation expense with the new asset. Is there a good way to do this?

[rbynaker]

Post-TCJA, at the federal level you'll recognize gain/loss on the disposition of the two old vehicles based on their trade in allowances.  The new vehicle will start depreciation when placed in service based on the total consideration provided (cash+property+financing).  State rules may be different (i.e. CA).

Rick

[abctax55]

As Rick pointed out,  § 1031 deferral of gain (at the Federal level) is no longer available for *anything* other than real property. 

[Xandilunas]

Yep, got that, my bad. So from my understanding, if you let's say, have a car with a basis of $5K, fully depreciated, and trade it for a car work $10K and a trade in allowance of $3K. You pay an addition $7K, the basis of the new vehicle is $10K, and you recognize $3K of gain (trade-in allowance minus depreciated basis). 

How would this change if there is no cash involved, but the new vehicle was received only for the depreciated $5K one? Would it be recorded as a sale for a price of $10K with the entire value recognized as gain?

[abctax55]

Trade in value of old car (that is fully depreciated) equals the gain.

*Purchase* of the new vehicle equals the depreciable basis.

IF the trade in value is artificially inflated to avoid any cash being involved - nothing changes.

[BobKamman]

I've never seen a trade-in value inflated to reduce cash.  I've just seen it by dealers who then inflate the purchase price by an equal amount.  

I haven't had any clients trading in business vehicles in the past few years, so I had forgotten about this TCJA tax increase.  But it's probably not that onerous, with Section 179 or accelerated depreciation available on most vehicles. Or are they?  And be sure to point out to the clients that they should have waited until EV tax credits were once again available, as long as the batteries are made with Chilean lithium.  (Chile is rewriting its Constitution under a new Socialist government.  We want to encourage that.)

[abctax55]

Never having traded in or leased a vehicle.... maybe I have that backwards.  I have just heard the rumor that games are played 😉

[qbteachmt]

"but the new vehicle was received only for the depreciated $5K one? Would it be recorded as a sale for a price of $10K"

The problem here stems from using the word worth. It isn't worth but Cost that you are supposed to be using. If you can get a $10k for $5k, that is basis. It doesn't matter if that $5k was "paid" by cash, trade in, or chickens. You paid $5k. There is no $10k anywhere in that transaction. The asking price of $10k became a $5k purchase. If it had really been worth $10k, they wouldn't let it go for $5k of anything.