lemom law

[bandb]

In 2024 taxpayer bought a truck, 100% business. Took section 179, bonus depr, and macrs, as well as the dealer redeemed EC tax credit of $7,500. In 2025, lemon law was declared and a new truck was given. Q:1.Does IRS treat this as a sale and purchase? 2. If yes,is new truck eligible for $7,500 EV credit? Transaction took place in July 2025.

[Skylane]

No. A direct lemon law vehicle replacement is viewed as a remedy to make the consumer whole, not a new retail transaction. It is not a sale and purchase.

[IRonMaN]

But do the same rules apply to a "lemom" law? 😜

[TaxGuyBill]

I suggest looking at the paperwork to check if it is a true direct replacement.

From what I've read, it is more common for the manufacturer to buy the vehicle back, which I would think would be treated as a sale.

Even if your client receive a new vehicle from the same manufacturer, it is possible the paperwork shows it as a sale of the old vehicle (the manufacturer is buying it back), then as a separate thing, a purchase of a new vehicle.

[bandb]

If determined to be a sale, there is a large gain due to EV credit and 179, bonus, and MACRS all reducing basis. Purchase will have 179, bonus and MACRS, BUT is it eligible for  $7,500 EV credit. Transaction too place in July 2025.

[bandb]

I have a letter from Ford Motor Co. Subject: Replacement of 2024 Ford F-150 Lightening.  Ford offers " to replace your vehicle under the terms of VA Lemon Law " Q: Is this adequate to support that it is not a sale/ purchase but a replacement? If yes, does new truck take on same adjusted basis as the old truck?

[IRonMaN]

If there was no cash exchanged, you have a replacement.

[Skylane]

I’d put the letter from Ford in the file and call it a day.

[bandb]

OK. I have evidence to support a replacement. On CY 2025 tax return, do I depreciate the new truck with the old adjusted basis and depreciation schedule?