How to Calculate Federal Tax AMT for a Vehicle Trade-In

How to Calculate Federal Tax AMT for a Vehicle Trade-In
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Things You'll Need

  • IRS tax forms

  • Calculator

Warning

Calculating your taxes using the AMT method is not optional. If you use the regular method to calculate your taxes and the AMT calculations give a higher tax result, you can be penalized by the IRS for not using the AMT method.

Tip

This can be a complex issue that should be addressed with the advice of a qualified accountant.

If you always use the longer depreciation methods for your vehicles, you may avoid having to pay AMT. The tax benefit is the same as using the shorter depreciation methods. It just takes longer to realize the full tax benefits.

In addition to computing your federal income taxes using the regular method, federal tax laws requires you to compute taxes using a formula called the alternative minimum tax (AMT) to determine if you are paying enough income tax. All taxpayers are required to pay the AMT amount if it is higher than the amount calculated using the regular method. Calculating your AMT may require re-figuring the depreciation or deductions taken under the regular method for such items as a vehicle trade-in that was used for business purposes. You should re-figure this amount whether you are the business owner or an employee using your vehicle for business purposes.

Step 1

Determine the tax basis of the replacement vehicle for your trade-in using the same method used in previous tax years. This will give you the maximum amount that you can claim as depreciation for the new vehicle. Use this figure to determine your tax liability using the regular tax method. This will typically require using IRS Form 4797 for a business owner or Form 2016 for an employee using his vehicle for business purposes.

Step 2

Determine the tax basis of the replacement vehicle using the AMT method, regardless of the method used in previous tax years. Under the AMT provisions, you must use the longer depreciation formulas.

Step 3

Determine the difference between the two results. This figure will be used with IRS Form 6251, which is used to determine whether you will pay the AMT or the tax amount using the regular method.

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