Basis of new auto-a different spin

[imjulier]

So I followed the other string on this but in my case there is a deferred loss on the 1031 exhange. The adj basis in the car traded in was 12,800. New car cost (after 5K trade in for old vehicle) was 28,000. New basis 40,800. The deferred loss on this is $7800 which is included in the new basis. (Dealer later sold the car for $6,000).

Owner drives A LOT. About 40K miles/year and when traded in, the vehicles have a lot of remaining basis but little value. Will this loss ever be released if we just keep doing trade-ins? His next vehicle in 6 years will probably give him a basis of $50K plus even though the car is only worth $30K. This seems odd. Am I missing something?

Thanks,

Julie

[Elrod]

Julie,

Check this...........http://www.irs.gov/pub/irs-pdf/i8824.pdf

[OldJack]

You are not missing anything!

[kcjenkins]

Julie, if that were my client, I'd advise him to NOT trade his car in the next time. Have him sell it outright. Then he can use whatever he gets for it as a downstroke on the new car. and he gets to write off the loss on the old one. It's a shame he did not do that this year.