Normally, the dealer will agree to a trade-in value for your old auto that reduces the cash you have to shell out for the new one.
Strategy: Figure taxes into the equation before you sign the papers. If you handle it well, you won’t owe any current tax on the trade-in, although you’ll still have to make certain adjustments in the new car’s basis.
Depending on your situation, you might even jigger the trade-in value to lock in a better tax result.
If you replace one business car with another on a regular basis, though, you’ll probably never write off the full cost of any of your cars. Plus, your annual deductions are generally limited by the “luxury car” rules. So, most of the time, adjusting your basis up or down doesn’t have much practical tax effect.
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