Have a Tax Question? Ask a Tax Expert
The sale price for the old car should be shown on the bill of sale or other documents provided by the dealer. The amount is likely to be $18k, since the balance was rolled into a new loan.
Did they actually pay off the loan or was the $6770 just added to your new loan?
Ok, then $18k is your depreciation recapture on the sale. Report it on Form 4797 with your tax return for the year of the sale.
Your only gain is on the depreciation recapture from the sale in the amount of $18k. The unpaid balance from the old loan should be transferred to the new loan account. The old car can be marked as disposed and the new car added as new property.
The new loan is not a gain, it is a liability.
Then you will need to divide your monthly payment between the operating portion of the lease and the negative equity / loan repayment portion.
How to set that up in your accounting system is a little beyond the scope of your original tax question concerning taxable gain.
I answered that question: you have an $18k gain on the disposal of the old car.
That is a separate transaction. There is no gain or loss to report on a loan repayment or refinance. The $18k you received for your trade went toward loan repayment and the balance of the loan will be amortized over the term of your lease.
Think of it this way- do you report gain when you make your loan payments? (No.) Then you shouldn't report gain when you repay it all at once.
No problem, glad I could help. Good luck and please don't forget to rate.