Question

lease buy out that later trade in

Forum|Forum|4 years ago
February 6, 2022
1 reply
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2013 leased a car. 2016 bought out the lease. 2021 traded the car for another car. Cars used partially for self-employment business. 2017 was less than 50%. I've used only the standard mileage deduction. How to I account for the trade in on the 2021 tax return. (Perhaps I should have done something different in 2016? I did not report the buyout.)

TurboTax Home & Biz Windows

ColeenD3

Yes, you should have reported the purchase so that you would have a vehicle that you owned to sell. Trade-ins are no longer treated as like-kind exchanges.

Since you used standard miles, you must use the depreciation component of standard miles to adjust your basis for the depreciation. You must adjust the basis for the allocation depreciation amount per mile for all business mileage deducted.

For 2021, the depreciation component is 26¢ per mile.

Depreciation Component of the Standard Mileage RateYear.....................2020..........2019..........2018..........2017..........2016

Rate per mile................27¢............26¢...........25¢............25¢............24¢

Note: These rates do not apply for any year in which the actual expenses method was used

C

Cbrooks3Author

so would the basis for the car disposed be the buyout price, plus lease payments, less depreciation?

And would that depreciation be for only the time frame that the car was owned or also for the lease time (using the IRS chart of course)? I used the standard mileage method every year. There was one year during the ownership time in which the business use percentage dipped below 50%. Am I correct that I cannot apply depreciation for that year? Then since exchanges are no longer allowed, I take it the basis for the new car is the price before the trade in credit was applied.

Z

ZoltanB45

The years that you leased the vehicle, you had to have just expensed the lease payments (percentage that was for business use). You would not add that to the basis. The basis is the price paid for it in 2016 minus the deprecation.