gain or loss on sale of a vehicle that had previous business use

[opleasenh325]

I'm a sole proprietor self employed. I did not start using TT until 2019. I bought a new car in 06/ 2011 (under personal name) that was put into service with business use on 06/2011 . This car had business use of about 90% per year for 2011, 2012, 2013. I then bought another car in 2014 (under personal name) that I began using instead, in business use. The first car was never used in business again and was not listed anywhere on any return after 2013. The original purchase price of the first car was about $13,176 (cost basis). The total accumulated depreciation after the filing of 2013 taxes was about $7435. The type of depreciation used was s/l (straight line) for a 5 year useful life. I sold this car (the one bought in 6/2011) in 2021 for $2950. Do I have a gain or a loss? If I take $13,176-$7435 that leaves $5741 as the adjusted cost basis of the car. If I then take $5741-$2950, that leaves a loss of $2791. Is this correct or am I using a fully depreciated adjusted cost basis of $0 and subtracting the $2950 from $0, which will result in a gain of $2950. Or am I completely confused and have no idea what I'm doing with this? Help! My next question will be how to answer the interview questions in 2021 TT Home and Business because I've tried it and it keeps telling my I have a gain. This may be due to incorrect input to questions. Thanks!

[opleasenh325]

I also will add that this was actual expense depreciation for the car.

[DianeW777]

The question is whether this vehicle was converted to personal use after it was removed from the business activity since it was not traded for the new vehicle purchased in 2014.  

If we assume the vehicle purchased in 2011 was converted to personal use, then there is no loss allowed on the vehicle, if applicable, however the business versus personal miles for the life of the vehicle will determine the percentage of the cost that was actually business and the depreciation that was actually used as a business expense could become taxable income to the extent of gain when using this formula.

To record the sale of a business asset that is no longer listed on your depreciation can be entered as follows.

1. Sign into your TurboTax account:
   1. Select that you disposed of the asset and if asked about a sales price enter zero. 
   1. To sell half of the building: Other Business Situations > Sale of Business Property >Start or Revisit > Enter your sale
   2. See the images below for assistance.

Please update the issue if you need further clarification.

[AmeliesUncle]

You probably have a gain.

It is easiest explained by an example.  For split-use assets (business and personal), it is treated as two separate items.  Let's say the TOTAL business use over ALL of the years that you owned it was 10% (it was 100% personal use after 2013).  That is based on the total business miles it was used, divided by the total odometer miles from purchase to sale.

In that example, your unadjusted Business "Basis" (similar to cost) is $1317.60 (10% of the total cost).

Your Adjusted Basis is $0 ($1317.60 minus the depreciation you took, but Basis can't go below zero).

The car was sold for $2950.  The business portion of that is 10%, so your business sale price is $295. 

So in this example, you have a $295 gain ($0 Adjusted Basis and $295 sale price).

[opleasenh325]

Thank you for the quick response. I'm processing the info and calculating numbers. I'll respond asap.

[opleasenh325]

Thank you also for your quick response. As I said above, I'm working on all of this. I'll let you guys know what I come up with.

[opleasenh325]

Ok,

here are the numbers. The car's total miles when sold were 24,500. The total business miles over the entire ownership of the car from the time it was put into service in 6/2011 until it's sale were 18,500 (but of course there were no more business miles after 2013- in fact nothing was listed on any tax return about the car ever again). 18500/24500 = 75.5% total business use for the entire ownership of the car. the cost basis of the car was $13,176. Next is this calculation of $13176 * 75.5% = $9947.88, which is the adjusted basis of the car. The ending accumulated depreciation in 2013 was $7435 (and no more depreciation was taken on any future tax returns from 2014 on). Sales price of the car was $2950. Next is this calculation of $2950 * 75.5% = $2227.25. This amount is the business portion of the sales price of the car. The adjusted basis - ending accumulated depreciation calculation is $9947.88 - $7435 = $2512.88. The business portion of sales price was $2227.25. Is this a loss of $285.63?

[DianeW777]

Yes, that would be the end result based on your information.  This recaptures the depreciation and shows only the business portion of the loss. A personal loss is never allowed to be used on the tax return.

[opleasenh325]

Since my post yesterday, I have been researching the form 4797 that I think I will need to complete through TT. Before I start this, I have a question. I need to complete part 1(e) that says:  "Depreciation allowed or allowable since acquisition". Why would that figure not be "0" since it's asking for the greater of allowed or allowable? In other words, wouldn't the allowable depreciation have been the TOTAL amount of depreciation we COULD have taken on the car, even though we only took $7435? And that total amount would have been the entire 5 year straight line allowable depreciation, which would have been either the $13,176 or the $9947. Either way, the allowable depreciation would have made the adjusted basis "0". Is that not correct or am I not understanding something about allowable depreciation for this car? Thanks.

[ThomasM125]

@opleasenh325 The allowable depreciation would be the straight line amount of depreciation during the period of time you used the auto for business proposes. If you had taken accelerated deprecation it would be allowable when you took it, but you would have to adjust it when you converted the use of the auto to personal purposes to the amount allowable under straight-line depreciation.

[opleasenh325]

Ok,

Thank you both very much for your above responses.

I may have additional information that is relevant. On form 4562 Part V line 25, there is an amount for Special depreciation allowance under letter (h), for about $8800. However, on line 26, there is an amount of about 13,100 or so and method convention that shows 5.00 year SL-HY, which is straight line half year depreciation. It looks to me like we used 5 year straight line depreciation, but I'm not understanding what the $8800 on line 25 means. Can you help me understand this? I just want to make sure we didn't take some kind of accelerated depreciation, which I don't think we did, but just not absolutely sure. Thanks.

[DianeW777]

If we are talking about the vehicle purchased in 2011, the question is whether you are looking at the 2011 Form 4562, line 25.  If so, and if there is $8,800 on the tax return for the special depreciation deduction, then it would appear that number is the amount you used for depreciation that year. 

If that is in fact the case, then it would appear you used up all of the business portion of the cost basis. The indication is that the vehicle was 66.7% business use the year placed in service.  It's also possible that if it dropped there may have been some recapture of part of that depreciation.  You should review each tax return to find the depreciation for each succeeding year and add them all together, reduced for any possible recapture to find the total.

I want to remind you that in a situation like this, using our How to get TurboTax Live (Online Only) may be beneficial.  For more information please use the link.