Tax Treatment of a Business Vehicle Trade-In
A guide to the federal tax treatment of a business vehicle trade-in transaction. The rules for this situation changed in 2018, so it is important for taxpayers to be aware of any differences from their last trade-in.
Prior to 2018, when a business vehicle was traded-in for a new business vehicle, the transaction was actually a Section 1031 exchange, reported on IRS Form 8824. After 2017, for federal purposes, Sec 1031 only applies to real estate property, and as a result, no longer applies to the trade-in of a vehicle. Thus, whether sold or traded in, the transaction is treated as a sale.
Tip
Since all post-2017 vehicle trade-ins are treated as sales, all things being equal, one would want to negotiate a lower trade-in value and higher purchase price as opposed to a higher trade-in value and a lower purchase price to minimize gain or maximize the loss from the disposition of the trade-in.