By 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 me on my direct line at 408-778-9651.