Vehicle Trade in with 179 depreciation.
After looking for a long time and not finding exactly what I needed, I figured it out and wanted to make a post to help anyone else. I have an accountant who actually does this for me when I file taxes, but my quickbooks was a mess because I didn't categorize these correctly originally.
YOU CAN ONLY TAKE A 179 OR MULTI YEAR DEPRECIATION, NOT BOTH.
I'll use whole numbers for simplicity.
I bought a truck in 2022 with a loan for $50,000
| Account | Debit | Credit |
| Truck 1 Asset | 50,000 | |
| Truck 1 Loan | 50,000 |
Then I used the 179 Deduction under vehicle expenses. This will show up on your P&L Vehicle expenses.
(S-Corperations take note if you take Shareholder distributions higher than the 179 deductions, they will appear on your personal tax returns as capitol gains at a rate of 15% in taxes)
| Account | Debit | Credit |
| Truck 1 Asset | 50,000 | |
| Vehicle Expenses: 179 Deduction | 50,000 |
Two years pass and I decide I need a bigger truck, I've now paid it half off, but its worth more so the trade in has positive equity. Truck Asset 1 sits at 0 value on the balance sheet because it was fully depreciated on the year of purchase.
Truck 1 Remaining Loan: 25,000
Trade in Value: 30,000
Truck 2 Price: 65,000
First you need to journal entry the purchase of the new truck.
| Account | Debit | Credit |
| Truck 2 Loan | 65,000 | |
| Truck 2 Asset | 65,000 |
Then again write off the whole truck with the 179 Deduction.
| Account | Debit | Credit |
| Truck 2 Asset | 65,000 | |
| Vehicle Expenses: 179 Deduction | 65,000 |
Now you must treat the trade in as an asset sale, which it is and will be added to your profit for the year, so plan on taxes on this amount. You must debit the Truck 1 Loan to zero it out and also debit the new Truck 2 Loan the equity of the trade in.
| Account | Debit | Credit |
| Truck 1 Loan | 25,000 | |
| Truck 2 Loan | 5,000 | |
| Sale of an Asset | 30,000 |
I paid Truck 2 Loan completely before the end of the calendar year so I could enjoy the full write off.
This should zero out your balance sheet.
Truck 1 Asset: 0
Truck 2 Asset: 0
Truck 1 Loan: 0
Truck 2 Loan: 0 (or what ever balance you now have left.)
Your P&L report should now reflect this as:
Other Income: Sale of an Asset 30,000
Vehicle Expenses: 179 Depreciation 65,000
Hope this helps!!
As always, if you're not sure, consult an accountant
*I am not a tax professional or financial advisor, these are simply my findings on this software.