Vehicle sale

Forum|Forum|6 years ago
January 6, 2020
3 replies
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I bought a used car for $8,000 in 2012 and used it for personal & self-employed business. I took mileage deductions but no depreciation - unless TurboTax automatically depreciates through mileage. I sold it for $1700 in 2019. How do I handle the sale now when TurboTax wants to know about basis for gain/loss and depreciation equivalent? If I leave everything blank it says the $1700 sale price is taxable income.

Anonymous_

Employee

No text available

TimParxAuthor

Right, I've done that but my question is, since I never claimed depreciation on the car, is there away to avoid having to claim the any of the sale price as income. Or, does claiming the mileage deduction every year count as depreciation? I did the gain/loss section and depreciation equivalent section and that shows a $1360 gain in TurboTax which they want to report as income.

TimParxAuthor

Is paying income tax on the sale proceeds unavoidable?

Carl11_2

Employee

When you take the per-mile deduction, and portion allowed for each mile "is" depreciation. As you know, the per-mile deduction changes every year, which means the amount of depreciation per mile also changes every year. When you sell or otherwise dispose of the vehicle, you are required by law to recapture all prior depreciation and pay tax on it. So to report it correctly you need the business miles driven each year (which you should already have) and you need to know how much depreciation was taken for each mile, in each year. To get that, see the chart at https://www.smbiz.com/sbrl003.html#dsm so you can do the math to figure the total depreciation taken for all years you owned the car and claimed any business use.

Your cost basis on the car is what you paid for it, minus all depreciation taken. So with your sales price, I would expect you to "NOT" have a taxable gain unless you drove a few hundred thousand business miles each and every year you claimed business use. But even so, this does not negate your requirement to correctly report the sale of this vehicle.

javatax14

I read this and other comments but what about Publication 463 on a Trade In.

I read publication 463 and it says a Trade in old car for new one the transaction is considered a like kind exchange. Generally no gain or loss is recognized.

Anonymous_

Employee

No text available

Anonymous

you may have a gain or loss on the sale of the vehicle. it really consists of two portions a business portion and a personal portion.

to compute the business portion take your business miles divide by your total miles and multiply by the cost of the vehicle. the personal portion is the total cost less the business portion

for each year 2012 through 2019 multiply the business mileage by the rate supplied. add up the amount for each year. this is the business depreciation the IRS says you took. subtract this from the business portion of the vehicle. if the result is negative the IRS says use $0. this is the remaining business basis, if any of the vehicle.

now multiply the sales proceeds by the business miles divided by your total miles. this is the portion of the proceeds allocable to the business portion. from this subtract your remaining business basis. this is your business gain or loss. if a gain, compare this to the business depreciation. if more, the excess is capital gain and the amount equal to the business depreciation taken is ordinary income - depreciation recapture. if a gain but less, it is all ordinary income - depreciation recapture. if a loss, this is an ordinary loss.

now from the total sales proceeds subtract the business portion

from the cost of the vehicle subtract the business portion

compare the personal portion of the proceeds to the personal portion of the vehicle. if a gain it is a capital gain. if a loss it is not deductible. in reality you should not end up with a personal gain

can TT handle this - don't know.

Gatorvet01

I'm still lost. I've read through the responses and I still can't figure out how to do mine. I started using my van for business in 2016. I'm estimating it was worth $18,400 then. I sold it November 2019. I have $6413 in depreciation based on the calculation using the standard mileage dedication tables you provided. I traded it in for a new vehicle and they gave me $1800 for it. Based on usage of 41.36% this means I made $754 on the sale.

For basis for gain/loss I did $18,400 -$ 6,413 and got $11,988

Then the next screen asks for depreciation equivalent so I entered in the $6413.

Then it tells me I have a gain of $745. How is that possible? I'm sure I am entering in something somewhere that I shouldn't be, but the directions make no sense.

If I don't put anything in the depreciation equivalent box I get a loss. HELP!

ThomasM125

The basis entry should have been the FMV when put into service of $18,400 times the business use percentage (41.36%), or $7,610.24.

You should enter 41.36% of the sale amount as the sales proceeds ($744), so the loss on sale should be $453 (basis of $7,610.24 - deprec $6,413 - sale $744).

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