Question about Sale of Business Property for a vehicle

[nebirah]

I'm not a tax expert but I'm confused by something you wrote:

The dealership offered me $500 for my old car.  I used it 24.71% in 2020, meaning $124 applied as a business gain, which I entered. 

Then, I get taken to a screen that asks me about "vehicle Cost".  I am assuming this was the original cost of the vehicle, when I bought it in 2008, so I entered that cost of $35000.  I then got a screen to determine basis of loss/gain.  I originally bought this car for $35000, and traded in a car that was worth $23000 (new in 2003), so I list my gain as $12000.  The next screen asks me for my prior depreciation equivalent, which is $31116.  The next screen tells me that my Gain on Sale is $124. 

There should be three boxes to fill in: Sales Price, Cost/Basis, and Depreciation Taken.

You bought the car with a list price of $35,000 but paid $35,000-23,000 for a purchase price of $12,000? Is that correct?

If so, then based on what @AmeliesUncle suggested I do to my car, this is what I suggest to you:

The first step is to calculate for a loss:

Sales Price = $376.45 (or 500 x 75.29%)

Basis = The depreciated cost of your car when you began using it for business multiplied by 75.29%. I'll use $8,000 for this example, so the math is 8000 x 75.29% = $6,023.20

Depr Taken = $6,023.20 (as this can't be greater than the Basis)

^^ This says that your basis is greater than your sales price, so you don't have a loss.

The next step is to calculate for a gain:

Sales Price = $124 (which is 500 x 24.71%)

Basis = $2,965.20 (which is 12,000 x 24.71%)

Depr Taken = $2,965.20 (because this can't be greater than the Basis)

When I go to my main page of income and expenses, it lists the "Sale of Business Property" as $5808.  Nobody can tell me why that number is popping as income, and nobody can tell me what I am entering wrong.  Can you help?

Try the math above, then let us know if the income page shows the same 5808.

[AmeliesUncle]

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@daveboyer wrote:

I used it 24.71% in 2020, meaning $124 applied as a business gain, which I entered. 

I am assuming this was the original cost of the vehicle, when I bought it in 2008, so I entered that cost of $35000.  I then got a screen to determine basis of loss/gain.  I originally bought this car for $35000, and traded in a car that was worth $23000 (new in 2003), so I list my gain as $12000.  

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It's more complicated than @nebirah  mentioned.  For example, you need to calculate the AVERAGE business percentage, not just 2020.  And the comments about the trade in don't really apply as you are mentioning.   The Basis of the car was still $35,000, UNLESS the prior car was also a business car, in which case it is even more complicated and you need to find your 2003 tax return to find Form 8824.

I think you asked this on another thread (and I responded to), but I suspect you may want to go to a tax professional this year.

[Geraldine Painter]

I received a 1099 NEC for the first half of the year and a w-2 for the second half.  My vehicle was a gift so I didn't take depreciation as an expense.  I used standard mileage.  I traded my vehicle in 12-20  no longer self employed.  Do I claim amount of trade 

[MarilynG1]

@Geraldine Painter Yes, when indicating that you stopped using your Vehicle for Business, you enter a 'sale price', which can be the amount you received as a Trade-In.

When you claim a Standard Mileage deduction, you are also claiming Depreciation.  Part of the per mile deduction is considered depreciation.

To figure your 'Accumulated Depreciation' you need to relate the Business Miles you claimed each year to to the Depreciation Equivalent Table to calculate the depreciation you have taken on your Business Vehicle.

If you have used your Business Vehicle over five years, it is fully depreciated, so you can just indicate that it was 'converted to personal use' and be done with it. 

If not, see page 24 of IRS Pub. 463 for your calculations  (screenshot). 

Since the vehicle was a gift, your 'Cost Basis' would be the Fair Market Value of the vehicle when you started using it for business. 

Click this link for more info on How to Close a Business on your Tax Return.

[ks5438]

I am military and deducting mileage expense for drill weekend travel which is more than 100 miles from my home. Most of these questions are business related, so I find it confusing. 

I traded my 1996 Ford 150 in for $1500 January 2020 and purchased a used 2020 Pickup Truck for $28,800. How do I enter this calculation?  I have the sales prices listed as $274.00 which represents usage at 34.29%.  I am at a loss of how to figure the Basis for gain/loss or Basis for AMT gain or loss. Where do I get this information? I appreciate any help you can offer. Thank you. 

[DMarkM1]

Your basis for gain/loss and AMT basis for gain/loss are both going to be the price you originally paid for the vehicle plus any major improvements you made (new engine/transmission for example).  On the next page you will figure the depreciation by clicking on the "Learn More" hyperlink to see the portion of your standard mileage deduction over the years to enter using your past years' mileage.  

[kspejewski]

I don't understand why this calculation is necessary when I don't claim the vehicle as an asset for a business. I just deduct the miles to travel back and forth to drill for the military.

[AmeliesUncle]

For many purposes (including this one), a W-2 job follows similar rules as a business.   Therefore by claiming the miles, you are claiming a "business deduction".

[Green H]

@AmyC  I have few hypothesis situation, I don't know if you can help me with them.

First,  If I have a business, take actual vehicle expense deduction, business is closed after two years, Car was used for 80% plus for business, now because business is closed, car is 100% personal use. Does it mean I just need to enter sold price when I sell that car in the future ( cost basie - total depreciation in those years) and If there is a gain, I have to enter sale of business property in the future ?

 If I sold the car after business is closed, the price I sold - ( cost basie - total depreciation in those years)? If there is a gain, I have to enter sale of business property now?  

Second,  If I have a business is closed after six years and the vehicle  has been depreciated for five years already. When I sold the car, dose it mean all the sale price is taxable? Because after five years , there is no baise cost left. So sale price - 0 is all sale price .

Thanks 

[RobertB4444]

When you sell the car you'll enter it as a sale of business property.  Even though the business is closed the business property remains.  So when you sell it you will enter the sale price as well as the basis (which should be 20% of the value since it was only ever used 80% for business) and the prior accumulated depreciation.  

If the sale price of the car is greater than that 20% basis then you will have a gain on the sale.  Since you had depreciated the car and got a regular income deduction for the depreciation that you took then you will have a gain on the sale of regular income.  That portion will be taxable.  

You don't need to enter anything into the system until you sell the car, though.

@Green H 

[Green H]

@RobertB4444  "So when you sell it you will enter the sale price as well as the basis (which should be 20% of the value since it was only ever used 80% for business) and the prior accumulated depreciation."

It the car cost 100K, I sold for 50K, so the sale price is 100K * 20% + prior accumulated depreciation ?

[RobertB4444]

No.  The sale price is $50K.  That's what you sold it for.

When you enter the information in for the sale it will ask what you paid for the car and you will enter $100K.  Then it will ask for prior accumulated depreciation and you will enter $80K.

Then the sale will look like - 

Sold for $50,0000

Minus basis of $20,000

Profit of $30,000

Recaptured depreciation of $30,000 taxed as regular income.

@Green H