Discussion:Like kind exchange - partial business use vehicle

In 2007, the taxpayer traded in his 2005 truck for $28,500 and paid $10,783 for a new 2007 truck with a sales price of $39,283. Lacerte has kept track of the history of his business use percentage of his old truck which was 65%. When calculating the basis of like kind property given for Form 8824, Lacerte is taking the truck's original cost $39,432 multiplied by 65% business use then the accumulated depreciation, etc.. The problem I have with this, is that when I take this plus the additional amount of $10,783 and create my new asset to depreciate. I will be taking 65% business use of the new asset also.

Shouldn't Lacerte be pulling over the original cost of the truck and not the cost multiplied by the business use percentage? I called Lacerte and they said that this was correct..they think..but it sure seems like I will be taking 65% of 65% in 2008 when I do the business usage of the new asset.

He was allowed 28,500, which is 100% of the allowance, for a vehicle with a 100% book value of 18,928, or a deferred gain of 9,572 on the entire truck.

I am hoping someone will come along and see if Tax Tools is right or wrong.

Maybe both ways get to the same answer.

The Tax Tools method sounds like a reasonable approach, but I am just now diving into these details. How did I manage to avoid a 1031 exchange of an asset only partially used in business all of these years?

Ksnoppytax, It sounds like Lacerte needs to be doing two separate calculations: One for the business portion of the asset that was exchanged, to be disclosed on Form 8825, and the other for the asset that carries to the depreciation schedule. I agree with you - it seems that you will be taking 65% of 65% when doing the business useage of the new asset. Again, I am just diving into this, but isn't there an option for carrying the asset as two separate assets on the depreciation schedule? If so, you could code the old asset (now at 65%) as 100% business use, and code the new portion of the asset at 65%.

Anyone ever notice that these trade-ins always come from people who sit on the other side of the desk, waiting for the word while you sit there and try to reason it out in your mind? It's never the people who drop their papers off and give you lots of time.

I ended up overriding Lacerte which I hate to do but Lacerte's calculation didn't make sense to me. I ended up having to plug the entire like kind exchange form :(

I'm going to work through the Pub tomorrow. I'm not crazy about relying on Pubs, but I'm hoping it will provide a format for the calculations. If it seems worthwhile, I'll post an example.

Did you have Sec 179 on the old auto? Do you have to recapture if the auto is exchanged before the 5 years?

Ksnoopytax, I sure see your point. I was pretty happy with the exchange wizard until I realized that the line 1 of the worksheet for line 25 of the 8824 is doing exactly what you said. I've emailed Lacerte, and I will let you know if I get a thoughtful response.

It does because it is treated as a disposition rather than an exchange.

I set up a spreadsheet with the Lacerte worksheet's incorrect calculation for Form 8824, lines 18 and 25.

Then I set up new columns to reflect the Pub 463 method, which sounds the same as D&T's Tax Tools: calculate adjusted basis of the auto traded as though the auto had been used 100% in business all these years.

Next, I tried to make the 8824 overrides work within the screen of the asset being traded. I simply could not. I set up a new asset with the Pub 463 amounts.

Finally, I did the exchange wizard, and generated 8824s that worked for all four tax calcs: fed, fed AMT, CA, and CA AMT.

I suspect that I will now have to print the 8824s to be attached to the return because I will have to delete the phantom asset that I created to this form.

Some of it is duplication, some of the flowcharts are pure government publications but the cost is so reasonable.