“Trade-in of Used Assets Just Became More Perilous” by Shawn Filipowicz, CPA | Manager – Tax
Business owners may be in for a surprise when they encounter the higher tax bill resulting from their traditional trade-in of used vehicles or equipment. Businesses that maintain ongoing trade-in programs with equipment or car manufacturers should pay special attention to these changes.
The prior tax law permitted the nonrecognition of tax gains or losses from exchanges of like-kind property. For example, if your business traded-in fully depreciated used equipment for new equipment, there was no recognition of the gain on the trade-in value. Often, vehicles owned by the company were traded-in for a newer vehicle.
Under the new tax law, Congress restricted the nonrecognition rule to real estate such as building or land. Like-kind exchanges for personal property, such as equipment or vehicles, are no longer available starting January 1, 2018.
Business owners should review the feasibility of ongoing trade-in programs or potential trade in transactions based on ordinary income gains on the trade-in of any property that is not real property.
Business owners may be able to offset some or all of this adverse impact in certain cases by utilizing the new rules for bonus depreciation and Section 179 asset expensing such as the broader range of assets and higher percentage deduction.
Transition rules permit like- kind exchange treatment for personal property assets if the date of either the trade in of the used asset or the receipt of the new asset occurred in 2017. Business owners should review the company’s like-kind transactions in late 2017 and early 2018 to determine if they could benefit from this transition rule.
As you look to exchange property, other than real property, contact your Apple Growth Partners Healthy Growth team to discuss the true tax impact of your purchase and trade-in.
The information contained in this article is current through the published date and may change when regulations and other guidance are issued. Content has been vetted by Apple Growth Partners’ internal tax reform team of licensed CPAs. For more information about this content, or any other matters related to tax reform, please contact your Apple Growth Partners advisor.