Calculate Depreciation Equivalent simpified

[bobalbertfamily]

Hello.

The other posts on this subject are not clear to me. I am a pretty simple person, so:

Had a 2004 Honda used partially for business from 2015 to 2023 when traded in for $500 towards a new car (Business amount of sale is $81).

The depreciation equivalent calculated is $7814.16 according to the formula given.

Where do I put that amount ($7814.16)?  In the PRIOR DEPRECIATION EQUUIVALENT box or the AMT PRIOR DEPRECIATION EQVALENT box?  Or both?  Or neither?  I certainly did not make a gain on this trade in.  If I put that amount in the first box (PRIOR DEPRECIATION EQUIVALENT), my taxes jump way up like I made a gain on the trade.

Also, do I use $81 for the sale price or $0, as the car was 20 years old when traded in.

Like I said, this is confusing and not sure what to do here.

Thank you

[DianeW777]

The sales price is $81 for the business percentage according to you. You can enter depreciation in both boxes.  

• Did you use depreciation or standard mileage rate (SMR) for the car while you used it for business? 

It would seem you have already determined the business use percentage (life of the vehicle: business miles divided by total miles on the vehicle when traded).  Based on your numbers you have a sales price for business of $81.  The cost basis was what you actually paid for the 2004 Honda times the business use percentage (16.2% per your numbers) and either the actual depreciation expense used on your return for the life of the car or the depreciation portion of all business miles.  See the chart below to calculate SMR depreciation.

The gain cannot be greater than you actual gain on the sale.

Business percentage of each number: Selling price - (cost less depreciation) = gain on the sale.

To record the sale in TurboTax assuming the car is listed in your business schedule.

The way to report the sale or trade-in, (trade is not recognized by the IRS any longer for equipment or vehicles) is as follows. You have all the records so it should provide you the detail to move forward.

1. All business miles for all years and then total miles for all years - divide business miles by total miles to arrive at your overall business use percentage for the life of the vehicle. You will use this percentage times the selling price (trade-in value) to arrive at the business selling price. 
2. Calculate the standard mileage rate depreciation portion for the business miles each year if that is the method you used for the expenses each year.  If not use the depreciation you actually deducted each year your vehicle was used for your business.
3. When go to the vehicle information under your business you can select 'Sold, disposed of, etc....' then do not indicate it was sold.  You must say 'Yes' it was converted to personal use.  This will eliminate any sales information in the vehicle itself.
4. Once you have completed the information in that section you will follow the steps below to enter your sale:
   1. Go to Other Business Situations
   2. Scroll to Sale of  Business Property
   3. On the next screen select Sales of business or rental property that you haven't already reported
   4. Use the information from step one and the depreciation from step 2 to complete your sale
5. If the personal portion of your vehicle is a loss there is nothing to report for that portion of the sale/trade.  

@bobalbertfamily 

                                                  

[bobalbertfamily]

Thank you.  This is still very confusing, so let me tell you what I think it is:

1) Car bought in 2004 but not used for Business till 2015.  Purchase price was $13,000 in 2004, value in 2015 was $2012.  I used $2012 as TOTAL VEHICLE COST. per the instruction.

2) Per the chart(I used the STANDARD MILEAGE RATE every year) , the depreciation amount was $7814, so I put $7814 in the PRIOR DEPRECIATION EQUIVALNT BOX and $7814 in the AMT PRIOR DEPRECIATION BOX.  (This is the confusing part  --- why put the same amount in both boxes?  It seems like it is asking for 2 different numbers.  Also it states in the note:  "However, the total amount you enter cannot exceed the depreciable basis of the vehicle."  So, should I be putting $2012 in those 2 boxes, as that was the TOTAL COST BASIS for the car entered previously?

3) I used .144 or 14.4% for the business use % of car 31,105 business miles / 216.155 total miles on car. $500 x .144 = $72 for the Sales Price Business Portion. (Traded in for $500 total)

4) On The CONVERSION TO NON BUSINESS USE question, I said NO to "Did you convert this asset to a non business use", as I no longer had the car --- i traded it in.  It sems like you are saying to say YES.  Not sure why.

Sorry for being long winded.  Please set me straight

[DianeW777]

Let's review your questions.

1. Cost basis is $1,872 ($13,000 x .144) - Use actual cost when you sell or trade, times business percentage for life of vehicle, not the FMV used for depreciation
2. The depreciation and AMT depreciation is $7,814.  AMT would be different if you had used an accelerated rate of depreciation, you did not. The standard mileage rate (SMR) is not an accelerated rate.
3. I do not see the same message 'However, the total amount you enter cannot exceed the depreciable basis of the vehicle.' You must enter the $7,814 because this is the actual expense you were able to use to reduce income and it's SMR, not based on the cost of your vehicle.
4. Answer 'Yes' it was converted to nonbusiness use because you no longer own it and you are reporting the sale under Sale of Business Assets.

Search > schedule c > Click the Jump to... link ang then select your vehicle, then edit to make any necessary changes

Please update if you have more questions. 

@bobalbertfamily