Gold Run Snowmobile Help (Journal Entries)?

[Jammin]

Another one that has me stumped...


December 22
Traded the old company truck for a new truck issuing check number 30106 to complete the transaction. The old truck cost $3800 and on Sept. 30 ( the end of the quarter) had depreciated $2200. Straight line Depreciation on the old truck is $40 per month. The new truck listed for $19950 and Auburn auto sales allowed a $3000 trade in allowance on the purchase of the new vehicle. This trade has no commercial and no gain or loss will be recognized on this transaction. ???

 

[lyong222]

1. You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. If you make this election, you treat the old car as disposed of at the time of the trade-in. The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car’s use had been for business purposes) plus any additional amount you paid for the new car. You then figure your depreciation deduction for the new car beginning with the date you placed it in service. You make this election by completing Form 2106, Part II, Section D. This method is explained later, beginning at Effect of trade-in on basis.

2. If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. You must apply two depreciation limits (see Depreciation Limits, later). The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car.

You must use Form 4562, Depreciation and Amortization, to compute your depreciation deduction. You cannot use Form 2106, Part II, Section D. This method is explained in Publication 946.

If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Otherwise, you must use the method described in (2).

The above is from:
http://www.cookco.us/depreciation_deduction.htm

The below is from:
If you dispose of a car, you may have a taxable gain or a deductible loss. The portion of any gain that is due to depreciation (including any section 179 or clean-fuel vehicle deduction) that you claimed on the car will be treated as ordinary income. However, you may not have to recognize a gain or loss if you dispose of the car because of a casually, theft, or trade-in.


reading the rest of the 2nd article should provide you with precise info.

If the car you traded in, had not been totally depreciated at the time you trade it in for the newer vehicle, I think you may lose the rest of the depreciation you would have gotten on the old car had you kept it. And cars are depreciated over 5 or 6 years.
If the dealer just subtracted the $3000 trade in allowance, then my understanding is that the depreciation you get on the new car going forward will be the amount you paid for the new car.
If the dealer handed you $3000 cash then it is the same thing. You depreciate the amount you paid for the car, be it $19950 or 19950 - 3000.

 

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