Taxpayer has car with unrecovered basis. They trade it in on a leased car. Term is 24 months with option to buy. How do you handle the remaining bases on the traded in car? Their is 4 years left to deprec.
i guess my first question would be the accounting of the trade in--if was used as advance payment on lease-would think inclusion rules apply
Treated as a sale at trade-in value. (No like-kind exchange, because a leased vehicle isn't like to an owned vehicle, unless it's a capital lease.)
Trade-in plus any additional down payment are prepaid lease payments, deducted ratably over the term of the lease.
