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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 993
Experience:  Certified Public Accountant
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My question is two parts. Part 1 I have 2 pickup trucks I

Customer Question

My question is two parts.
Part 1
I have 2 pickup trucks I use to tow our mobile workshops in my wheel repair business. One is an 11 Titan which I bought new and elected to use the standard mileage deduction on. The other is a 15 RAM which I bought last year and took the 100% 179 deduction on.
I am looking to replace the Titan with another RAM and was considering trading the 15 RAM as well to reduce expenses.
I would like to take the standard mileage deduction on the new RAM and was wondering if I could trade in both trucks in a "like kind exchange" to defer recapture, which would be substantial on the 15 RAM. The Titan has 109K on it, and I understand there is a schedule indicating the portion of that mileage related to depreciation I would use for reducing my basis in the new truck.
My question revolves around whether I can trade 2 trucks for 1 with a like kind exchange, and if so, can I elect the standard mileage deduction on the new truck since I used the 179 on the 15 RAM. I imagine my cost basis in the new truck would be reduced to zero or even negative trading both in for one new one.
Part 2
I use mobile wheel repair trailers which are basically custom built mobile workshops. In January of this year, one of the trailers was hit, resulting in a total loss. I have full replacement coverage on the trailer, so while actual cash value was estimated around 12K, full replacement was closer to $65K, which is what the insurance company paid me to replace it. I did buy a new trailer and used all of the insurance proceeds on the new one. I also bought back the totaled trailer at salvage value which was around $1200. My question is this...how do I calculate the basis in my new trailer to reflect the like kind replacement of it along with the salvage value I paid on the old one (would there be any basis for me to elect a 179 deduction this year), and how would it work should I choose to sell the totaled trailer? I estimate I could get about $10K for it to the right buyer.
Submitted: 19 days ago.
Category: Tax
Expert:  Mark Taylor replied 19 days ago.

Hi Jesse, my name is Mark. I will be happy to help you with your questions. Let me address part 2 first.

Expert:  Mark Taylor replied 19 days ago.

You would have a casualty gain from the trailer that was totaled. You would take the insurance proceeds less your adjusted basis in the trailer to determine the gain. You would have a $1200 basis in the salvaged trailer. This would be eligible for section 179 treatment. The basis of the new trailer is 65,000. This also would be eligible for section 179 expense. Of course you would need to meet the other income requirements.

Expert:  Mark Taylor replied 19 days ago.

For part 1, you can do a like kind exchange involve two trucks being exchanged for one truck. Unfortunately you would not be able to combine the trucks in one like kind transaction. The reason for this is you are not able to combined one asset being depreciated using MACR (179 expense)and the other using the standard mileage rate.

Customer: replied 19 days ago.
Hi Mark,So on the new trailer, how do I treat the casualty gain? Does that offset or reduce the 65K basis I have to zero? Is there a like kind relationship between the two or are they kept separate?On the trucks, can I choose one truck or the other to trade in? Am I able to trade the Titan because I've been using standard mileage but not the Ram because of the actual cost method, or does it not matter? I need to use the mileage method on the new truck because I do over 20K per year.
Expert:  Mark Taylor replied 19 days ago.

If you use the entire insurance proceeds to purchase a new trailer you would postpone the gain. Essentially your basis in the trailer that was totaled would carry over to the new trailer. If you only spend $60,000 on the new trailer and receive $5,000 in cash you would have a gain of $5,000.

Publication 547 deals with casualty losses and gains.

For the like kind exchange, it would not matter what truck you use. If you use the truck where the standard mileage was claimed you would need to calculate the depreciation allowance to determine the basis of the truck.

Customer: replied 19 days ago.
Hi Mark,So since I used the entire proceeds from insurance for the new trailer my basis in that is zero. What about the old one? Since I still own it and bought it back from insurance, how does that affect my basis specifically on that? I've been using regular depreciation on it. So since I made another purchase of it, am I able to take the remaining depreciation along with my salvage purchase price from the insurance and continue to depreciate it until I sell it? At which point I'm assuming any proceeds would be regular taxable income?In regards ***** ***** I'm assuming it would make more sense to trade the RAM since the recapture of it would be greater than the Titan, and sell the Titan privately for more money. The recapture on it would be a little bigger because I'd get more for it but that would be offset by the fact I'd get more for it.Lastly, I just want to confirm I can trade the fully depreciated RAM I have for a new one, at which point my basis would be reduced in the new one by the amount I receive on trade, defering recapture AND that I can elect the mileage deduction on the new truck, even though I used 179 deduction on the 15 RAM I'd be trading in.
Expert:  Mark Taylor replied 19 days ago.

If you buy it back your basis in it will be the $1200. You would be able to take the section 179 expense. If you had basis on the trailer this basis would carry over to the new trailer. So if your basis was $5,000. You would have a $5,000 basis in the new trailer.

Yes, you should trade the RAM. I agree with that strategy. If the RAM was fully depreciated your zero basis would carryover to the new truck. The value that you receive as a trade in would increase the basis.

Customer: replied 19 days ago.
You mean it would reduce the basis in the new truck right?
Expert:  Mark Taylor replied 19 days ago.

Let's say you bought the original truck for $30,000 and it is fully depreciated. If you do a 1031 to buy a $35,000 truck with a $10,000 trade in value. your new basis would be $5,000 ($35,000 less $30,000).

Expert:  Mark Taylor replied 19 days ago.

Here is a useful spreadsheet for 1031 exchanges. https://www.efirstbank1031.com/documents/Form8824Worksheet.xls

Customer: replied 19 days ago.
basically, with like kind exchange the amount you get on trade really doesn't matter then? You're just reducing the basis of the new truck by the depreciation you already took on the old one?
Expert:  Mark Taylor replied 18 days ago.

Yes, the amount of the trade in does not impact. If you purchase a truck that costs more than the original truck you would add that to the adjusted basis.

Customer: replied 15 days ago.
Hi Mark,I've been working a deal on my new truck. The dealer offered me a pretty good number for my Titan, but not a great offer for my 15 RAM. The number is ***** 10K less than what I owe on it, so I'm inclined to trade the Titan for a like kind replacement for the new RAM diesel I want.The recent development is that I can buy the same exact RAM truck I currently have, a Ram Sport at a huge discount. So I could get a brand new truck, a year newer for $34K. I paid like $43K for the one I have now a year ago, and I owe about $38K. All of the truck has been depreciated with a 179 deduction. My question is this, can I trade both my trucks in the same transaction, doing a double like kind replacement and buy two new ones where I would then buy the diesel and elect the standard mileage deduction (so Titan which I used the mileage deduction on would get traded for the RAM diesel where I would take the standard mileage deduction going forward), and then trade my current RAM Sport (which I have fully deducted with a 179 deduction for last year) for a new Ram Sport and then lease the new Sport and then expense the payments? I would buy it outright but I'm guessing if I do that then I would have a zero basis in it, because the old truck cost more than the new one so there would be little to deduct.My thinking is that doing this I can defer my recapture on both trucks, and then maximize my tax deductions going forward..using the RAM diesel's mileage deduction which I'll be putting about 20K year on, and then writing off the lease payments on the new RAM Sport, at which point at lease end I could just turn it in with no recapture?Would this work?
Expert:  Mark Taylor replied 15 days ago.

Hi Jesse, if you lease the vehicle it does not qualify for a 1031 exchange. So the transaction would be as if you sold the truck for whatever the dealership is giving you in the trade.