Disposition of old vehicle showing up as large gain

[Rhdh]

We purchased the truck for business in 2006 and had to dispose of it in 2020.

We used actual expenses and mileage each year when filing tax return.

Company is a sole proprietor and business use is about 96%.

We fully depreciated it using Section 179

How are lines 51 and 52 on the Car and Truck Expense Worksheet calculated?

Why is it showing up as a gain on schedule 1 line 4.

The truck quit working so no monies were received when disposing of this vehicle.

[KathrynG3]

Lines 51 and 52 on the Car and Truck Expense Worksheet are for depreciation allowed or allowable and AMT depreciation allowed or allowable. The reason that part of it is showing up as a gain on Schedule 1 line 4 is because of "depreciation recapture." When it is sold, this tax benefit is added to any gain from the sale if the vehicle has not already been fully depreciated.

I recommend going back through the section where you reported the sale of the vehicle.

It would appear that something was inadvertently not input correctly. With the age of the vehicle, and the vehicle fully disposed, I would expect there to not be any recapture required. Some areas to scrutinize:

• Perhaps the personal use portion has not been included. If that were the case, then 100% of the vehicle, not 96% of the vehicle is being used, which could result in a higher adjusted basis.
• Perhaps identifying the option that Section 179 was used on this should only be checked if you are within the useful life of the vehicle, indicating that there was still something left to depreciate. Do not check this box to report that Section 179 was used long ago.
• Perhaps the business use percentage fluctuated over the years. 

About depreciation:

In general, the truck has a useful life. The cost of the truck is depreciated over that useful life, giving you a tax benefit over that time frame. Line 51 and 52 calculate the depreciation at different rates, but both will end up at the total business cost at the end. Since your vehicle is well past its expected life, these two lines should reflect the full business portion truck cost. 

TurboTax explains depreciation recapture as: 

If you took the section 179 deduction for some of your business property and you no longer qualify for it, you need to refigure your depreciation as though you hadn't been allowed the deduction. Then you report the difference as income on your tax return.

If you take accelerated depreciation on business property and then, before your property is fully depreciated, you no longer use your property more than 50% of the time, you have to refigure the depreciation using a straight-line method. You must recapture the difference as income, in the same way you must recapture your section 179 deduction.

[AmeliesUncle]

TurboTax is NOT set up if the business percentage varied from year to year.

Because it was fully depreciated (leaving an Adjusted Basis of $0) and it was 'sold' for $0, you will have $0 of gain/loss.  Because of that, I think I would just say you converted it to personal use, which will essentially delete it.

[Rhdh]

Thank you for that information.

I see that my error was in the section asking for Basis for Gain/Loss.

Does Turbo tax keep track of all the past depreciations that were allowed so that I can subtract that from the purchase price?

[AmeliesUncle]

Hypothetically, yes.  But sometimes errors occur so it might not have necessarily transferred.  But there should be a place that asks for "prior depreciation".