Q. I am buying a new business car, but I haven?t finished writing off the old one I?m trading in. Can I claim depreciation deductions for the new one? A.E.P., Albuquerque, N.M.
A. Yes. You may elect to treat the trade-in of the old car as a tax-free disposition. Then you can depreciate the new car based on an adjusted basis of the old car (figured as if 100% of the car?s use was for business) plus any additional amount paid for the new car. The depreciation deduction for the new car begins on the date you placed it in service. Alternatively, you can figure depreciation separately on the remaining basis of the old car and any additional amount paid for the new car.
Tip: Special ?luxury car? depreciation limits apply to most vehicles. See your tax pro for details.
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