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When your corporation reimburses you for the business use of your vehicle, you have tax consequences when you sell or trade in that vehicle.

 

Example 1. You purchased a vehicle for $40,000 and had the corporation reimburse you $40,000 for bonus depreciation. You now trade in the vehicle for a $45,000 vehicle. The dealer gives you $20,000 for the trade-in.

 

You have a $20,000 gain on the trade-in ($20,000 – zero basis). You report the $20,000 gain on your personal IRS Form 1040 using IRS Form 4797.

 

Example 2. Same facts as in Example 1, but your C corporation reimbursed you using IRS mileage rates. For the miles that you were reimbursed, the mileage rate depreciation totaled $12,000. At the time of the trade-in, your basis is $28,000 ($40,000 – $12,000).

 

The dealer gives you a trade-in allowance of $20,000. You have an $8,000 loss that you deduct on your IRS Form 1040 using IRS Form 4797 ($20,000 – $28,000).

 

Two things to note here.

 

  • To keep the examples straightforward, we assumed 100 percent business use.
  • Note that the corporation does nothing—the trade-in is totally on you and your personal vehicle.

 

If you want to discuss the corporate reimbursements to you for the use of your personal vehicle, please call us at 305-814-1377 or schedule a time with us here.