depreciation and recapture on schedule C auto

[Pupa1]

I'm ready to let go of my schedule C vehicle, which was classified for usage: 20% personal and 80% business (consulting). The car was purchased in 2019.   I understand that if I sell it at a loss there will be no recapture tax.  Does the IRS require that it be sold at FMV or can I determine the price? Like can I sell it for $10?  

[Mike9241]

who are you selling it to - related to you.? In an arms-length transaction, you can sell it for whatever you want.  loss would be deductible at least in part. 

if it isn't arms-length then you can also sell it for whatever you want but the loss might not be deductible and if the FMV exceeded the sales price by over about $17K a gift tax return might be required. 

[Pupa1]

I'm thinking of selling it to my son-in-law.  I'm not going to take any loss -or any deduction-my self-employment income is minimal  and I'm phasing it out-- I'm just wondering about recapture.   It seems like if I can legally do that it's a  better idea, or does the IRS say no?  

In Texas for example, if you buy a car from someone for less than the value according to their DMV list  you still have to pay sales tax on the car according to their value.   Does the IRS also have similar Math with recapture tax?

[DianeW777]

No, it doesn't work that way in your situation.  You should be sure the car is not put in the name of your daughter to eliminate related party rules. The sales tax factor is out of my scope.

Related Party rules do not pertain to your son-in-law according to the IRS (not bloodline): (IRS Publication 544)

• Related persons.  The following is a list of related persons. 
  • Members of a family, including siblings, half siblings, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).

Use the following instructions to report the sale of your vehicle - this is a simple process and should be followed because of the possible business use changing year over year.

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 to arrive at the business selling price. Use the same percentage to arrive at your business portion of the cost before depreciation. 
2. Calculate the standard mileage rate depreciation portion for the business miles each year if you used that the first year and any other year.
3. When you enter the vehicle information in your business be sure to 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 it self.
4. Write down the depreciation for all prior years and the current year so it's available to enter the actual sale below.
5. Once you have completed the information in that section you will follow the steps below to enter your sale:
   1. Go to Less Common Business Situations
   2. Scroll to Sale of  Business Property
   3. On the next screen select Any Other Property Sale
   4. Use the information from step one and the depreciation from step 2 to complete your sale - this will take care of any necessary recapture of depreciation/ordinary gain.
6. If the personal portion of your vehicle is a loss there is nothing to report for that portion of the sale/trade.  If it is a gain you must report that under investment sales.

This completes your entry for your business vehicle.  Please update here if you have more questions and one of our Tax Experts will help.

@Pupa1

[Edited: 03/13/2024 | 1:12 PM PST]