(NAFB) There are likely farmers who traded in used equipment for new pieces in 2025 but may not be aware of how to report trade-in value on their income taxes. The 2017 Tax Cuts and Jobs Act changed how you claim the new purchase. Joe Peiffer, Attorney with Ag & Business Legal Strategies, explains that whatever the dealer allowed as a trade-in will now be taxed as ordinary income. He gives an example.
“In the past, before 2017 if you traded it in on a million-dollar combine and they offered you a quarter of a million dollars, your tax basis in the new combine would be a million less the quarter-of-a-million they’d offered you that had no tax basis in it, because you had already depreciated it out. So you then depreciate $750,000 for the new combine.”
But today, that’s all changed.
“After the tax and jobs creation act of 2017, you would report the quarter-of-a-million that they allowed you for the trade-in as though you sold the combine and got a quarter-of-a-million dollars. That meant that, since you depreciated it fully, you would then report that all as depreciation recapture, which is taxed at ordinary income tax rates.”
Peiffer says keep those sales documents handy for your tax preparer.
“I would suggest giving them a copy of your trade-in agreement that shows how much you were allowed on the trade in, and then he or she’ll be able to take that off and realize, in my example, that you got a quarter-of-a-million dollars as trade-in. They’ll look at that and say, What was your tax basis in it, and report the gain as necessary. And then they’ll know what you paid for the new one. So then they can now depreciate that whole thing.”
As always, consult your tax professional or attorney before filing your taxes.
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Audio from NAFB News Service
Audio with Joe Peiffer, Attorney with Ag & Business Legal Strategies, Hiawatha, Iowa
