Any accountants on this board??

I purchased a new car in 2011 through my business.. Its nearing 100k already and need to sell it before it's value plummets in the next 5k..

My question, for tax purposes, is it more tax advantagous to trade-in the car on a new car (which means I take trade-in value) or can I sell the car privately and try to get a few extra $1000s ?? Someone told me that I'd take a hit on the taxes if I sold it privately vs. trade-in.

Thoughts?

 

It really depends on how much you can get private sale vs trading in and how much taxes are on new purchases where you are located. I know last time I bought new it pretty much evened out in my situation. Trading was simpler so I went that route. Trade value factored into how much taxes I payed on the new vehicle.

I'm far from knowledgeable in this area though. Hopefully someone more savvy from you area will chime in.

 

This sums it up. In some states you pay sales tax on the net price of new car minus the trade value, so there are some tax savings. So you have to weigh the tax savings vs the greater price you may get in a private transaction, and considering the "hassle factor." So the key is the price of the new car you negotiate first, then the real money value they offer for your trade. As an example (which may be extreme) when we bought my wife's 2013 ES300h, the Lexus dealer offered 3,000 for her 06 Volvo S80, which I sold on Craigslist for 9,600. Well worth the hassle factor.

Many folks I know that have business cars just lease. They say it is easier on their bookkeeper, and they get something new every 3-4 years.

 

Most tax jurisdictions will base capital gain/loss and depreciation on "fair market value". Whether you sell or trade, as long as you're within range of FMV, the taxman doesn't care. You disposed an asset and acquired a new one.

This is why leasing has it's advantages, technically you don't own the asset, you are paying for the use of it and returning it at the end.

 

This does bring up another issue. My post above addressed the sales tax on the transaction. Without getting too complicated, in the US if you have used your car in a business and sell the car in a private transaction for a price that is more than the current depreciated basis you will have depreciation recapture taxed as ordinary income on your federal income tax return. If you trade in the car, you do not currently recognize this income. Additionally, your state's income tax laws may have different depreciation rules, etc.

Again, why many in business lease vehicles, as you don't have to keep track of depreciation.

And "as long as you're within range of FMV, the taxman doesn't care" does not apply to the IRS. They want exact numbers.

 

it depends on how you have your business setup. You might want to talk with your accountant about section 179 for rapid depreciation of a vehicle over 6000 GVWR (GX or LX). This allows for the vehicle to be depreciated fully over 5 years, but depending on the year you can take a sizable amount the first year. 2014 was about 50k depreciation the first year on a LX. 2010 was 100% of the purchase price if I remember right.

 

In regards to trade-ins and federal taxation.

If you trade-in your car, that is a like-kind exchange. Whatever your gain/loss is on the vehicle, you won't recognize it as income this year, but rather you will reduce the depreciable basis of the new vehicle.