Basis of New Auto

[Bart]

Own an auto that has a net book value of 8000. Purchase a new auto and trade in the old auto. New auto costs 25000 and the dealership allows 11000 for the trade in of old auto What is the basis of new auto?

[Maribeth]

$22,000

[gfizer]

Basis for new vehicle would be the cost of the new vehicle after trade-in allowance plus the adjusted basis of the traded vehicle. $25000 - $11000=$14000 + $8000 = $22000

[OldJack]

Basis of the new auto is $33,000. $25,000+8,000=$33,000. Trade-in value is irrelevant as it is a plug figure for the dealer to get to a price that the buyer will accept. $25,000 is assumed, in this example, to be the additional price to pay (cash or loan) after giving up his old vehicle. Book value to depreciate is the $33,000 after removing the old vehicle at book value adding to the new vehicle. In other words, new basis is: book value of trade-in plus actual cash/loan to pay for the new vehicle.

[Elrod]

May be like kind exchange...form 8824.

http://www.irs.gov/uac/Form-8824,-Like-Kind-Exchanges%28and-section-1043-conflict-of-interest-sales%29

[OldJack]

May be like kind exchange...form 8824.

http://www.irs.gov/uac/Form-8824,-Like-Kind-Exchanges%28and-section-1043-conflict-of-interest-sales%29

Of course a trade-in is always a like kind exchange or it would have to be treated as a sale. Most preparers report the old vehicle on form 4797 at zero gain/loss just to account for the asset disposition. Most do not report it on form 8824 as that form is difficult to understand for a non-tax transaction, but technically it should be on form 8824.

[jainen]

>>trade in the old auto<<

Do you mean these are 100% business vehicles subject to Section 1031? If so, his new basis is $19000--the $8000 carryover basis, plus the $14000 extra that he paid, minus the $3000 deferred gain. Otherwise, it's $25,000--the $11000 value of his old car plus the extra 14.

[OldJack]

>>minus the $3000 deferred gain.<<

There is no deferred gain to record or consider in tax basis.

See Publication 463:

>>Trade-in. When you trade in an old car for a new one, the transaction is considered a like-kind exchange. Generally, no gain or loss is recognized. (For exceptions, see chapter 1 of Publication 544.) In a trade-in situation, your basis in the new property is generally your adjusted basis in the old property plus any additional amount you pay. (See Unadjusted basis, earlier.)<<

[kcjenkins]

According to the OP the price paid was $14,000 so the basis on the new would be the 14 plus the basis of the trade in, which was 8, thus $22,000.

[OldJack]

According to the OP the price paid was $14,000 so the basis on the new would be the 14 plus the basis of the trade in, which was 8, thus $22,000.

In that case I agree with $22,000 basis, however, the Original Post did say the "cost" was $25,000 rather than saying the sale price/sticker price was $25,000. $14,000 was not in the original post. Words matter!

[kcjenkins]

Own an auto that has a net book value of 8000. Purchase a new auto and trade in the old auto. New auto costs 25000 and the dealership allows 11000 for the trade in of old auto What is the basis of new auto?

That, to me means his price paid was $14000.