Trade in of vehicle

Forum|Forum|1 year ago
July 24, 2024
1 reply
20 views

My client received a Truck distribution from his S corp. I recorded the property distribution on the K-1 and the deemed sale at FMV. The truck is fully depreciated. The Kelly Blue Book value is $9500. On the same day as the distribution, the shareholder traded in the Truck to purchase a Toyota. The Retail Sales Contract at Toyota shows the trade-in at $13500. The client says the Trade-in value is inflated because they negotiated dealer fees and the dealer increased the trade in to reduce the final cost. Do I need to show the Trade in (Sale) of the Truck to Toyota for $13500 with basis of $9500 on the personal Form 8949? Or, not show the sale at all, and assume the Truck was sold to Toyota for the Kelly Blue book value? I have heard that dealers play with numbers and the Trade in value can be manipulated to "make the sale."

ProSeries Professional

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T

TaxGuyBill

Level 15

If your client's negotiation resulted in him getting $13,500, that is how much the vehicle was sold for. That extra $4000 needs to go somewhere - either as the FMV distributed to him or on 8949/Schedule D with a gain.

It seems like your client should have negotiated things differently.

J

jgcpaAuthor

Level 5

Thank you. Currently, I have the $4000 going to the Form 8949 Sch D. (1040)

IRonMaN

Level 15

I normally tend to agree with Bill but based on the facts presented, I would hold off on my judgement for now. If you properly valued the vehicle using a reliable source for valuations, I wouldn't be so quick to have your client pay some additional tax. I know that I used to deal with a car dealership that used to never show a discount on the purchase of a new vehicle, but they used to inflate the value of the trade to net out to the same place. So the moral of the story is, that trade in value may or may not represent the true value of the vehicle.

Slava Ukraini!

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