A business trades in a vehicle for $28K lower than the NBV of the vehicle. Can this $28K loss be taken as a business loss or does it become part of the cost basis?

[AnmarieA]

This business is an 1120S and the initial vehicle was purchased in 2018 and then traded in 2022 for a newer vehicle. The trade in value given on the purchase was $21K and the NBV of this vehicle was $49K creating a loss of $28K. Does this loss become part of the cost basis of the new vehicle or can the business write off this loss in 2022?

[sjrcpa]

It's a business loss. Like kind exchanges are no longer available for personal property, only real property.

[AnmarieA]

Can you clarify that it is a Tax Deductible business loss and not recorded as part of the cost basis for the new asset being purchased. As the intuit video recorded a gain as part of the cost basis of the new asset so that is what really confused me. https://www.youtube.com/watch?v=wEZlMVdDPHE

Thanks for your assistance and feedback.

Anmarie

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[TaxMonkey · Accepted solution]

Yes, that video is incorrect.  At 4:55 when she said that her "tax advisor" told her to reduce the basis in the replacement vehicle by the amount of the gain on the relinquished vehicle, he was advising her to do a 1031 exchange, which is not allowed on vehicles exchanged after 2017.

In the video's example the gain would be taxable, and the basis would be the purchase price.

In your situation the loss is deductible, assuming all other requirements are met.

https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-ti...

[AnmarieA]

Thank you as that is what I thought as well so it was great for your response. Now just getting Proconnect to calculate the loss correctly as it is not cooperating for me.............