Q&A: S Corporation Reimburses Personal Vehicle

Here is a question put forward by an S Corporation businessman. He runs an S Corporation and the corporation reimburses for the use of his personal vehicle. He bought the vehicle in 2022 and is now planning to sell it. So, what happens when he trades it?

The answer is as follows:

Case 1: If you purchased a vehicle for $40,000 and the corporation reimbursed $40,000 for bonus depreciation and now you trade in the vehicle for $45,000 and the dealer gives you $20,000 for the trade-in, you will have $20,000 profit on the trade ($20,000-zero basis). Now you can report the $20,000 gain on your personal Form 1040 using IRS form 4797.

Case 2: If your C corporation reimbursed you using IRS mileage rates. For the miles you were reimbursed, the mileage rate depreciation totaled $12,000. Now during the time of trade your basis is $28,000 ($40,000-$12,000). The dealer gives you a trade-in allowance of $20,000. You have a loss of $8,000 that you deduct from the IRS Form 1040 using IRS Form 4797.

The following are to be noted here:

A 100 percent business use was assumed to keep the examples straightforward.
The S corporation does nothing here – the trade-in is on you and your personal vehicle.