Need help with disposition of a car used for Sch C and E business use

[saluki88]

I used a 2014 personal car for business mileage in 2014 to 2016 and charged the standard mileage rate.  In 2017, I did not use the 2014 car for business purposes but I did trade the 2014 vehicle in for a 2017 personal truck that I am currently using for the same business. (Note:only 20% of truck use is business).

1. Do I need to file schedule E car and truck expense worksheet for the 2014 car?  I did not use the 2014 car for business in 2017.

2. Turbo tax wants me to fill out a form 8824 Like Kind Exchange?  do I need to do this?  

[AmandaR1]

Normally, when you stop using a vehicle for business, you must recapture depreciation expense taken in past years, as taxable income. 

Alternatively, when you trade in a vehicle, instead of recognizing a gain or loss on the sale (related to business use portion) and recapture of depreciation, there is a special calculation for the basis in your new vehicle to defer the gain or loss. This treatment is for like-kind exchanges reported on form 8824. 

In regards to your first question, yes the software will account for the use of the vehicle from 2014 - 2016 to calculate what depreciation recapture would have been at 100% depreciation for excess depreciation and the carryover amounts for the basis in the new vehicle. 

See this info at the IRS Pub 463 for vehicle dispositions, here: https://www.irs.gov/pub/irs-pdf/p463.pdf

[Kathy4]

How do I handle a similar situation, but we never depreciated the vehicle?

[jMadduxCPA]

With the TCJA, like kind exchanges are no longer applicable to personal property (real estate only can be like kind exchanged with gain deferred).

When you trade in a vehicle after December 31, 2017, you have to recognize the difference between the trade-in value and the basis.  This has been detrimental to many taxpayers that relied on annual trade-ins (bad idea anyway) because they now have to recapture all of that depreciation every time the trade-in.

[Bill S62]

It is now the 2022 Filing Year. This is the first year I am having a problem with Part VII - Disposition of a Vehicle, and specifically Line #'s 51, and 52 (depreciation allowed or allowable), also Line #'s 49 and 50 (gain loss basis) of the "Car and Truck Expenses Worksheet".

I traded in a vehicle for a newer vehicle. The trade-in was new and in service for less than a year. It was somewhat of a lemon, and I had lost confidence in the vehicle and the reason for the trade-in.

I am not sure how Line's 49 and 50 are determined and is required input by me when going through the questions. 

Lines 51 and 52 are calculated by TurboTax. I am at the review stage and TT throws a "Fix" needed because the Amount in question is "too high". I do not know what to change to lower this amount.

One weird thing I do not understand is why it is being reported as a gain. I traded in the vehicle for a more expensive vehicle and lost $11,000 on the trade.

Any help to get me through this would be appreciated. Thanks!

[RobertB4444]

A trade in is treated as a sale of the vehicle.  The amount that you sold it for is the trade in value that you received.  If you fully depreciated the vehicle prior to trading it in then the value it has on your books is $0.  So anything that you receive as a trade in value means that you received a profit.  You sold something worth zero dollars for any amount then you profited that amount.

It sounds like your problem here is with the data entry for setting up the asset.  If the system is saying that you're not allowed a deduction then there is a reason.  Dispose of the vehicle as a proper sale and then set up the new vehicle (lemon or not) as another asset and enter the total amount that you paid for it (including the trade in) and start depreciating that.  That should fix your issues.

@Bill S62 

[tjmac10301]

 I use my personal vehicle for work.  I sold my 2011 Durango in June of 2022 so have entered ‘0’ for miles driven from 07/01 through 12/31 but the software won’t let me transmit my return and the check keeps highlighting that entry on the worksheet (6b)

 What am I doing wrong?

I have never depreciated my vehicle, just claimed work mileage. 

[Bill S62]

My issue was similar. While online with a support representative, she could not figure out what the issue was, so we had to delete the specific form and start over with the vehicle. I do not recall what the form number was. To delete the form once you have the number, go to Tools on the left pane and search for the Form. Once you have deleted it, you will need to go back through the questionnaire so that the form is re-created. Hope that helps!

[DianeW777]

When you say 'work mileage', it would seem you took the standard mileage rate instead of actual expenses that would include depreciation.   The standard mileage rate does have a portion that is considered depreciation and must be accounted for on sale.  Below are steps to enter your sale of the vehicle and how to remove it from your return for the future.  It is a two step process once you have all your numbers.

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 all years to arrive at your overall business use percentage for the life of the vehicle. You will use this percentage times the selling price (or 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.  
   •  A portion of the standard mileage rate is considered depreciation (see below).
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 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
5. If the personal portion of your vehicle is a loss there is nothing to report for that portion of the sale/trade.  

Once this is completed the state return should reflect the correct changes.  See the depreciation portion of the standard mileage rate below.

@tjmac10301