Vehicle Trade-In and 8824

[KBTS]

I'm hoping for some help here as I cannot think straight about this anymore:

Client traded a truck in on another truck in May 2007. Details as follows:

Old Vehicle:

Original cost: $22,089
Depreciation (not 100% business): $6,445
Depreciation (if 100% business): $6,885
Loan balance at trade in: $6,945


New Vehicle

Sticker price plus fees: $29,732
Trade in allowed: $7,500
Cash Down: $4,000
Amount Financed: $18,232

I used the Trade-In worksheet on page 10-2 of TTB and got the following:

Line 1: 22,089
Line 2: 6,445
Line 3: 15,644
Line 4: 22,232
Line 5: 37,876
Line 6: 6,885
Line 7: 440
Line 8: 37,436

Did I do this part correctly?

Also, I've filled out the 8824 about 5 different ways and could use some help figuring out the amounts that go on lines 15-25. I keep getting confused on the figures to use on line 16 and 18. So if anyone could help me out this, I would really appreciate it.

Thanks

[BHoffman]

Try this handy link

http://www.bayview1031.com/documents/downloads/FORM8824V1.0.xls

[BHoffman]

Line 4

Could be wrong, but I'm getting this for line 4 and giving you a bump

New car price 29,732 - old car basis 15,644 = 14,088 additional cash paid for new car.

[KBTS]

Thanks for the link. I will give it a look later this morning after church. Meanwhile, anyone else out there have an idea on this - Bees, your thoughts would be appreciated.

[solomon]

I'm hoping for some help here as I cannot think straight about this anymore:

Client traded a truck in on another truck in May 2007. Details as follows:

Old Vehicle:

Original cost: $22,089
Depreciation (not 100% business): $6,445
Depreciation (if 100% business): $6,885
Loan balance at trade in: $6,945


New Vehicle

Sticker price plus fees: $29,732
Trade in allowed: $7,500
Cash Down: $4,000
Amount Financed: $18,232

I used the Trade-In worksheet on page 10-2 of TTB and got the following:

Line 1: 22,089
Line 2: 6,445
Line 3: 15,644
Line 4: 22,232
Line 5: 37,876
Line 6: 6,885
Line 7: 440
Line 8: 37,436

Did I do this part correctly?

Also, I've filled out the 8824 about 5 different ways and could use some help figuring out the amounts that go on lines 15-25. I keep getting confused on the figures to use on line 16 and 18. So if anyone could help me out this, I would really appreciate it.

Thanks

Carryover basis 15,204 (or 15,644) and Excess basis 15,287.

[BHoffman]

I'm printing this

Here's a wonderful detail about LKE of autos:

http://www.thetaxbook.com/forums/showthread.php?t=8018

I've printed it and am keeping it TTB right at page 10-2. This is just GREAT!!!!

[Roland Slugg]

$37,436 is correct

To answer your original question: Yes, you did it right and got the correct result. The basis of the new vehicle is $37,436.

For reasons that I have never understood the tax law was changed a few years ago ... 2001 or 2002, as I recall ... to require that taxpayers continue depreciating the old, i.e. traded-in asset as if it were still owned. Depreciation on the new asset would be based only on the additional amount paid for it. If you follow this rule, the old truck (current basis is down to $15,204) just keeps right on being depreciated, and depreciation on the new truck (basis of $22,232) starts as of the date placed in service.

Taxpayers can elect out of the above "split basis" by attaching a prescribed statement to F-4562. See Regs §1.168(i)-6(i)

What I have often wondered is that if the old and new vehicles are subject to the "Luxury Vehicle" depreciation limits, and the taxpayer does not make the election to combine their bases into one, does each of the two components of a "split basis" vehicle get to be depreciated up to the annual maximum? If not, and a single annual limit applies to the "pair," how is that limit allocated between them?

One final point: In many "sale vs trade" situations (perhaps even most) it is far better to sell the old vehicle than to trade it in on a new one. In the case cited in the original post in this thread, if the taxpayer had done that, selling the old truck for $7,500 instead of trading it in, he would have generated a recognized a loss of $7,704 ... $15,204 basis less $7,500 received.

[KBTS]

Thanks to all that responded. I think I finally got it all figured out and even got the 8824 to work in ProSeries.

[solomon]

Also, I've filled out the 8824 about 5 different ways and could use some help figuring out the amounts that go on lines 15-25. I keep getting confused on the figures to use on line 16 and 18. So if anyone could help me out this, I would really appreciate it.

Thanks

15-0
16-29,732
17-29,732
18-30491
19-(759)
24-(759)
25-30,491

Adjusted Basis --------- 15,204
Cash Paid ---------------- 4,000
Liability Assumed ------ 18,232
Liability Relief ------------ (6,945)

--------------------------------- 30,491