Business Use of a Personal Vehicle - Sale Question

[Lonsi]

Trying to figure out how I treat this situation.

My wife is self employed starting her business in 2018.

We purchased a personal vehicle new in 2018 but did not take any deprecation\mileage deduction that year on her schedule C.

In 2019 and 2020 we deducted actual expenses and depreciation of the vehicle for use that was under 50%.

In 2021 we purchased a new vehicle which took this vehicle's place and we stopped using it for business, drove it for personal use until December of 2021 when we sold it.

Turbotax is telling me I need to report a 179 recapture and potentially a sale? Is that correct? Since it's business use has always been under 50% each year it was used (overall 19% from mileage across all years) does that mean 19% of the proceeds need to reported as business income even though it is technically a personal vehicle?

[ErnieS0]

Yes. Split the sale between 19% business and 81% personal, with the deprecation claimed on the business side.

[Mike9241]

a vehicle has a 5years MACRS depreciable life. however, under the rules, it takes 6 years to fully depreciate it. if you take 179, if business use, for any reason, drops below 50% before the 6 years are up you have to recapture the 179 depreciation you took but you get the depreciation you would have been allowed if you had not used section 179.

179 is a rediculous tax provision because in most cases where section 179 is allowed section 168(k) - bonus  deprecition is allowed up to the same amount as the would e 179.  the difference is there is no business income limitation for 168(k) nor is there recapture as business use changes.  however, even with 168(k)  when you dispose of an asset you have to determine gain or loss based on the net businsss tax basis  and any gain on the personal portion is taxble (same as with 179)