What If I Sell or Trade In My Vehicle?

If you trade in your vehicle to the dealer, which is their allowance applied to the cost of your new vehicle, this is not considered a taxable event. You simply record the tax basis of the new vehicle as the sum of what you will eventually will be paying for it (down payment plus loan balance) and the remaining tax basis (cost less depreciation) of your previous vehicle.

If you sell your business vehicle outright, you need to determine your tax basis (usually cost, less depreciation allowed or allowable) to determine the gain or loss on the transaction. Only the gain or loss attributable to the business portion of the gain or loss is recognized, and is reported on Form 4797.

If you used the standard mileage rate for deducting expenses for the vehicle being sold or traded, you need to determine what per- mile portion of the deductions were attributable to depreciation.

For additional information, see IRS Publication 917.

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