If you have to calculate the gain or loss to your company from disposing of your business vehicles -- whether by donation, trade-in or sale -- you usually don't use the purchase price. Instead, you adjust the original price for various factors, such as tax deductions and the business mileage, to arrive at the adjusted basis. The basis is the starting point for determining gain, loss and depreciation.
If the purchase price of your current vehicle included a trade-in of your old vehicle, the value of the old vehicle is part of your current basis. If you paid $20,000 for your van, plus trading in your old vehicle, you must calculate the adjusted basis on the trade-in van. If the basis was $1,500, then your new van starts out with an adjusted basis of $21,500. You should also add in sales taxes and other fees you paid when you bought your vehicle.
Deductions and Credits
If you claim any tax deductions or tax credits for your vehicle during the years you own it, you must decrease the basis by that amount. If you claimed a total $3,000 in deductions for a clean-fuel vehicle, for instance, that will lower your basis $3,000 when you dispose of the vehicle. If you claimed a deduction for mileage or depreciation, you have to reduce your basis for those figures as well.
Incidental repairs for problems such as a flat tire or an oil leak don't affect your basis. If you've made major improvements to your car that increase its value or make it last longer, those increase your basis. If you spend $5,000 equipping your $20,000 car with a new, fuel-efficient engine, that could increase the basis to $25,000. The effect on the basis depends, in part, on whether you treated the upgrade as a capital expense or a straight deduction.
When you need to calculate the vehicle's adjusted basis, start with the purchase price, then add or subtract all the relevant increases or decreases. The lower your adjusted basis, the greater the gain if you sell the vehicle. In some cases, you may have to use different figures from your actual claimed deductions or expenses: You must always adjust the basis for the maximum possible depreciation, for instance, even if you didn't claim the maximum. No matter how big a deduction you may have claimed, the basis never adjusts below zero.