Electing out of Like-Kind exchange on std mileage vehicle on Drake

[bgiez]

Okay, I've read all the previous posts that I could find here and on the Drake website concerning like-kind exchanges and if I were not going to elect out, I would be all set. But it seems to make more sense to me to elect out because both the old and the new vehicles are using SMR and it looks kind of odd leaving the old vehicle on the depreciation schedule.

When electing out - does this mean that you don't complete the 8424, just the election notice? Or do they both go?
Then do you enter the disposition of the asset as if you sold it for the trade in amount with no reference on the 4562 asset screen to a like-kind exchange?

And out of curiosity, how would you keep track of the 2 different bases if you didn't elect out anyway - one for sale or exchange and one for depreciation? Only one basis shows on the depreciation schedule (well, two really - one for the new and one for the old.)

Thanks for any help.

[bgiez]

Bump

crickets chirping.

[ddoshan]

crickets chirping.

Don't know if this helps but ... Right or wrong all I do is enter the new vehicle into the auto worksheets indicating that there was a trade in of the old vehicle. Our program will then bring up a box or whatever where you enter the information about the old vehicle, basis, mileage, etc. Hopefully you have done the return in the past so you have all of this information. It then will account for the amount of depreciation implied based on the mileage and years etc.
Getting goofy here but I think you get the point.
In any case, I do not do a form 8424 when there is trade in of a business vehicle where the standard mileage rate is being used. A worksheet is generated showing all the details of the trade, depreciation, cost, boot, etc. to arrive at a basis for the new vehicle.

[bgiez]

Thanks, Ddoshan. Calculating basis was not an issue; I used the instructions in TTB 10-2, and followed the example on 10-10. My understanding of what I have read so far leads me to believe that because the vehicle was traded to the dealer who sold the client the new vehicle that it is a like-kind exchange. I understand how to keep it as a like-kind exchange with both items still showing on the depreciation list, but I am unclear about how to handle it in Drake when I want to elect out (other than using the election itself).

[Roland Slugg]

Where did you get the idea that someone can "elect out" of LKE treatment? If a transaction meets the definition, its use is mandatory.

[Nashville]

LKE transaction no different

Using mileage method would have eliminated all of this, but of course that doesn't answer your question.

Before discussing the more complicated world of LKE transactions, let's just consider you handled the auto traded in using the rules already in place for the trade-in of used personal property. There is no gain or loss unless the former owner received cash. If the former owner PAID cash it is called "boot" and the basis of the new vehicle is equal to the basis of the old vehicle plus the boot.

Ironically, if you are seeking treatment under LKE rules, the result is exactly the same. Basis of new vehicle is guess what? The basis of the old vehicle plus the boot!!

In other words, there is no difference so why try to invoke LKE? Unless, of course, your client is the one who RECEIVED the boot.

As a footnote, basis calculation as described in TTB 10-2 is correct.

[bgiez]

Where did you get the idea that someone can "elect out" of LKE treatment? If a transaction meets the definition, its use is mandatory.

From TTB-9, option 1 under Business Auto Trade-In Rules. Maybe I'm not understanding the terminology, but what I wanted to avoid is carrying an item on the depreciation schedule that had been traded in. I get the basis part, I am trying to figure out how to handle the disposition of the old vehicle in Drake. I didn't find the Drake knowledge base and forum particularly enlightening.

[bgiez]

Using mileage method would have eliminated all of this, but of course that doesn't answer your question.

Can you explain, please? Both vehicles are using standard mileage rate and, as I mentioned, I used TTB Business Auto Trade-in Worksheet on 10-2 and followed the example on 10-10.

I know there are a number of Drake users here and I've only been using Drake since last year so I'm not very familiar with it. (Used Taxworks for TY2002-2011. HRB for before that for TY1994-2001.) I was hoping to hear from them.

[Nashville]

Don't carry it

From TTB-9, option 1 under Business Auto Trade-In Rules. Maybe I'm not understanding the terminology, but what I wanted to avoid is carrying an item on the depreciation schedule that had been traded in. I get the basis part, I am trying to figure out how to handle the disposition of the old vehicle in Drake. I didn't find the Drake knowledge base and forum particularly enlightening.

The new vehicle can be carried in the depreciation schedule at a depreciable basis of the boot plus any remaining basis of the old vehicle.
The old vehicle should not be carried in a depreciation schedule at all under ANY circumstance.

While you're at it, this might be a good time to switch to the SMR method.

[bgiez]

The new vehicle can be carried in the depreciation schedule at a depreciable basis of the boot plus any remaining basis of the old vehicle.
The old vehicle should not be carried in a depreciation schedule at all under ANY circumstance.

But...? Are you saying just remove the old vehicle? No 8824? Vehicle traded in to dealer and took possession of new vehicle same day old vehicle surrendered. Doesn't that make it a Like-Kind Exchange? Each vehicle was used for business.

[/QUOTE]While you're at it, this might be a good time to switch to the SMR method.[/QUOTE]

See my post above - both old and new vehicles used/are using SMR. I always recommend (but don't force) SMR because most clients have all they can do just to keep track of mileage, never mind all the gas receipts, etc. and I think it usually gives them a bigger deduction, too. And you don't have to worry about limits.

[Nashville]

Yep - just remove it

Yes, remove it. It's gone isn't it? And if it had any basis remaining, it is rolled into the basis of the new vehicle, so why keep it around?

Additionally, if you have such a depreciation schedule for personal property, such a schedule should not include these vehicles to begin with if you are using the SMR. The SMR already includes the depreciation element in the rate, so depreciating the auto is an expense not allowed except as a part of the "actual" method.

There IS a depreciation element buried in the SMR rate but it is an integral part of the SMR and not in addition to. This element (ranging between 22 and 23 cents over the last few years) can be used in conjunction with the business percentage of the auto to arrive at a business "basis" (if you will). This business "basis" may be used for computation of losses or trade-ins, but if the SMR method is used, the business element cannot be used to add to the mileage deduction.

[bgiez]

Yes, remove it. It's gone isn't it? And if it had any basis remaining, it is rolled into the basis of the new vehicle, so why keep it around?

I can see the lightbulb over my head lighting up now. Thanks, Nashville!

[/QUOTE]Additionally, if you have such a depreciation schedule for personal property, such a schedule should not include these vehicles to begin with if you are using the SMR. The SMR already includes the depreciation element in the rate, so depreciating the auto is an expense not allowed except as a part of the "actual" method.[/QUOTE]

Yep, I know. Drake lists it at the bottom of the depreciation schedule and indicates that SMR was taken. And, in case they want to switch to actual in any year after the first, the original basis will be there along with the date first used for business.

Thanks, again, Nashville. One of these days on my trips down to Winchester (where my daughter and her family live), I'm going to find you and thank you in person.

[RitaB]

This is not correct, is it?

[QUOTE=bgiez;162554]But...? Are you saying just remove the old vehicle? No 8824?]



This is a thread from 2014. It kind of wound up where bgiez thought he didn't need to complete Form 8824. I don't think that's correct. I have the same situation now. A 100% business use vehicle for which SMR was used has been traded, plus boot, for another 100% business use vehicle for which SMR is being used. The traded vehicle has adjusted basis of zero, and the trade-in allowance was 5,175. They have a deferred gain here. And 8824 needs to be done. Am I wrong?

I am looking at 2015 TTB 10-8, too, and I think I have Option #1. It says the Form 8824 has to be filed.

[Snaggletooth]

No gain (or loss) on a trade-in of a vehicle

Rita, there is no gain or loss on a trade-in of a vehicle. The basis of the new vehicle is the difference paid (boot) plus the remaining basis of the used vehicle.

Flatpicker has a fully depreciated vehicle traded in for another vehicle with a negotiated sale price of $25,000. If there is a trade-in allowance of $5175, the basis of the new vehicle is simply $19,825. If the old car has a basis of $2000, then the basis of the new vehicle is $21,825. No gain or loss on trade-in.

If old vehicle is sold outright (not traded in), then gain/loss is recognized.

The above is simple enough, but can get complicated if there is a business percentage and SMR. The basis of the trade-in, if any, is the purchase price times the business percentage, adjusted downward by .22 or .23 cents per mile, using whatever element exists for that year. The same non-recognition of gain/loss applies on a trade-in, but the basis is as described above, added to the boot X business percentage on the new car. Gets messy.

[RitaB]

Rita, there is no gain or loss on a trade-in of a vehicle. The basis of the new vehicle is the difference paid (boot) plus the remaining basis of the used vehicle.

Flatpicker has a fully depreciated vehicle traded in for another vehicle with a negotiated sale price of $25,000. If there is a trade-in allowance of $5175, the basis of the new vehicle is simply $19,825. If the old car has a basis of $2000, then the basis of the new vehicle is $21,825. No gain or loss on trade-in.

If old vehicle is sold outright (not traded in), then gain/loss is recognized.

The above is simple enough, but can get complicated if there is a business percentage and SMR. The basis of the trade-in, if any, is the purchase price times the business percentage, adjusted downward by .22 or .23 cents per mile, using whatever element exists for that year. The same non-recognition of gain/loss applies on a trade-in, but the basis is as described above, added to the boot X business percentage on the new car. Gets messy.

My client has a deferred gain of 5,175. It appears on line 24 of Form 8824. The basis of the new vehicle is exactly as you said. I've done the return. The Form 8824 is attached to it. Yes, it was messy, because ATX makes it ridiculously difficult to see where to input what you know you have to input. But they had to make it pretty or something, I guess.