Trade-In on a New SUV
Reimbursement by Corporation
Case Study Overview: This case study provides a detailed example of how a corporation can reimburse an employee for the trade-in of their old vehicle and the purchase of a new SUV, including the calculation of Section 179 expense, bonus depreciation, and MACRS depreciation.
1. Vehicle Trade-In and New Purchase
Employee's Initial Steps:
Trade-In Value: The employee trades in their old vehicle and receives a trade-in value.
New Vehicle Purchase Price: The employee purchases a new SUV.
Example:
Trade-In Value of Old Vehicle: $10,000
Purchase Price of New SUV: $40,000
Taxes and Fees on New SUV: $3,000
2. Net Purchase Price Calculation To calculate the net purchase price of the new vehicle:
Net Purchase Price=Purchase Price+Taxes and Fees−Trade-In Value
Net Purchase Price=$40,000+$3,000−$10,000
Net Purchase Price=$33,000
3. Business Use Percentage Determine the business use percentage of the new vehicle. For example:
Business Use Percentage: 80%
4. Business Basis of New Vehicle Calculate the business basis of the new vehicle:
Business Basis=Net Purchase Price×Business Use Percentage
Business Basis=$33,000×80%
Business Basis=$26,400
5. Depreciation Calculation
Section 179 Expense: Allows for immediate expensing of a portion of the business basis of the vehicle.
Bonus Depreciation: Additional first-year depreciation for the business basis of the vehicle.
MACRS Depreciation: Depreciation calculated over the asset's recovery period under MACRS.
Straight-Line Depreciation: Depreciation calculated evenly over the asset's useful life.
6. Reporting and Basis Reduction The employee must reduce the basis of their new vehicle by the total reimbursement amount received. This basis reduction must be reported for tax purposes, and the employee must ensure compliance with all recapture requirements if business use drops below 50% within the next five years.
7. Reimbursement Request Form Employees should complete the Vehicle Reimbursement Request Form, providing all necessary details, including:
Vehicle purchase receipt
Mileage log
Business use percentage
Reimbursement request breakdown
8. Employer's Approval The employer must review and approve the reimbursement request, ensuring all calculations and documentation are accurate and compliant with the reimbursement policy.
9. Summary of Reimbursement Calculation:
Vehicle Details:
Trade-In Value: $10,000
New Vehicle Cost: $40,000
Taxes and Fees: $3,000
Net Purchase Price: $33,000
Business Basis Calculation:
Business Use Percentage: 80%
Business Basis: $26,400
Depreciation Reimbursement Breakdown:
Section 179 Expense: $10,000
Bonus Depreciation: $5,000
MACRS Depreciation: $7,000
Straight-Line Depreciation: $4,400
Total Reimbursement: $26,400
By following this example and ensuring proper documentation, employees can be accurately reimbursed for the business use of their new vehicles, while employers maintain compliance with tax regulations and company policies.
This detailed case study ensures clarity in the reimbursement process, helping both employees and employers navigate the financial aspects of vehicle trade-ins and new purchases.