Trade in of biz truck-Like kind exchange

[joanmcq]

Starting this, I just realized I never did a like kind exchange in ATX. My clients tend to drive biz cars until they die, or they just convert them to personal.

So ATX has been tracking the biz usage since 2006, when it was put into service. Basis was 10k, but depreciable basis is $3472. Accumulated depreciation $2971.

Truck was traded in for $7500 on a new Ford Focus that is also partial biz use. Cost of Ford is $26356 before trade in.

So I added in the $6528 as a basis adjustment (difference between 10k & depreciable basis), so the total basis of the like kind property given up becomes $7029. Loan taken on new car for $19229. I'm getting $471 of deferred gain on the 8824, and basis of new car as $26,258. Is this correct? It doesn't seem like it; shouldn't there be more gain because of the depreciation taken?

It's late.....see the 'I'm tired' thread. I think this lil guy describes me about now.

[SCL]

i'm not sure if this is any help...but here are two thing i know after years of working and reworking ?50 business vehicle like kind exchanges - the tax book or quickfinders has a worksheet and explanation of the matter AND any discussion of this subject on tax blogs has been avoided like the plague. may the force be with you!

it is a real BEEEEAAAACH!!!!

1) an election to treat the new vehicle's depreciable basis as a seperate asset (the old way that now requires an election attached to the return) OR continue depreciating a combination basis of the old asset (that no longer exists) and the new asset - as god is my witness, this has never made any sense to me since it was introduced many years ago. for what it's worth, i make the election.

2) milage or depreciation (depending on the situation, i take milage or elect straight line because early dispositions of accellerated deprn require recapture that is its own nightmare, % business use, luxury car limits, fm 8824 (LKEx), and more.

3) TWO different numbers need to be tracked - the depreciable basis of the new asset AND the taxable basis of the new asset - because there will likely be a (large?) loss if it is ever totally disposed.

4) what do i charge for this?

[jainen]

>>quickfinders has a worksheet<<

This is the key. You have to work out the numbers with a pencil. Once everything (including Form 8842, Schedules B and C and D and whatever else is involved) is completed by hand, with a pencil and a hand-held calculator, only then (after an appropriate rest period) can you work on getting it into the computer.

[joanmcq]

Blecch! I encourage people to private party sell their old cars. It makes life a heck of a lot easier.

Election to treat as separate? I'm going to look into that. ATX does have a lovely elections form.

Yes, and I also never use accelerated depreciation if I can avoid it. Section 179 or nothing. Tracking different depreciation, losses/gains for CA & Fed is rarely worth the amount of tax savings vs. what I charge.

[jainen]

>>Section 179 or nothing. Tracking different depreciation, losses/gains for CA & Fed is rarely worth the amount of tax savings<<

You do know that California doesn't conform with most of the recent changes to Section 179? Do you always elect out of bonus depreciation? What if the client has more than $25,000 of potential 179 deductions? What about Section 179 for 15-year real estate or computer software? What if you need to amend a 179 election? I won't even mention that corporations aren't allowed to use MACRS. How do you avoid California adjustments?

The election is not to treat as separate; separate is the ordinary way in which the remaining basis of the old vehicle continues its same schedule while any additional cash or financing for the replacement vehicle is treated as a new asset. That gives the fastest write-off, but makes more sense with the big numbers in real estate.

You can elect OUT of this separate treatment, and say the remaining basis of the old vehicle and the additional cash or financing for the replacement vehicle are treated as a single new asset starting over on the date of the exchange. That is simpler, but requires longer depreciation with no Section 179,

[joanmcq]

jainen, I've never had a client that exceeded the CA limit on Sec. 179. I am not doing big businesses. It's the decision as to use Sec. 179 on the biz computer or office furniture vs. MACRS. Accounting for minute differences for 5 years (especially with rentals where ATX doesn't do the passive loss computation automatically) is a pain in the butt, so if I can avoid bonus depreciation, I do. It's rarely worth the extra couple of bucks of current expense vs. what I charge to deal with it. For big SUVs (when they were so popular), explaining that they won't be able to use the standard mileage rate usually discourages the desire to expense the thing.

I haven't done a corp in about 7 years. Heck, this is the first trade-in I've had in 12!

[joanmcq]

Ok, done the calcs. Now does anyone know a way to get the depreciable basis into ATX without overriding the asset entry form line 14? Or do I put in the depreciable basis and then just hope I remember the basis for gain/loss is different if/when the car is sold?

[jainen]

>>basis for gain/loss is different if/when the car is sold<<

Like any asset used less than 100% for business, a sale (or an exchange) is treated as two transactions--a personal-use capital asset, and a business asset. The sale of a non-business vehicle will almost certainly be a non-deductible loss, so there is no need to track that portion of it.

The basis of the replacement business portion is the same for depreciation as for gain/loss. There are two ways to get the right number. Neither one has anything whatsoever to do with a new loan, so please edit your earlier post to delete that line before you get mixed up. First take the new basis (percent of $26356) minus deferred gain (percent of $7500 minus adjusted basis). Then take the old adjusted basis and add the additional cost ($26356 minus $7500, percentages thereof). You must not proceed until you get the same number both ways.

The second method gives a clearer picture of the two separate bases for depreciation. One is the adjusted basis of the old truck, continuing on its same schedule. The additional cost starts a new 5-year schedule. Or, make the election to combine both into a new five year schedule.

By the way, did you check the classification tables to verify that a truck is like-kind to a Ford Focus? With real estate everything is like kind, but equipment has some arcane rules about product codes and stuff.

[joanmcq]

Dammit, light trucks are a different asset class than frikking automobiles!!!

So disposition of truck for $7500 prorated for biz use portion and separate purchase of car?

I gotta just work on the easy stuff this time of night.