Suppose you're in the market for a new business vehicle. You go down to the local showroom, kick the tires and try to wrangle the best deal. Normally, the dealer will agree to a trade-in value for your old car that reduces the cash you have to lay out for the new one.
Strategy: Before you jump into the deal, figure taxes into the equation. If you handle things correctly, you won't owe any current tax on the trade-in. But you'll need to adjust the new car's basis.
Depending on your situation, you might even jigger the trade-in value to achieve a better tax result. However, if you regularly replace one business car with another, you'll probably never write off the full cost of any of your cars. Plus, your annual deductions are still limited by the "luxury car" rules (see box below). So adjusting your basis up or down won't have much practical tax effect.
How to calculate new car's basis
Here's the skinny: ...(register to read more)