Tax Year Prior to 2020: Sale of biz vehicle showing as a (taxable) gain and should be a loss?

[ejbrk]

I understand that I need to report the sale of my vehicle since I traded it in and is no longer being used for my biz. But it should be showing as a loss, and keeps showing as a gain of the sale value I entered no matter what I do:

I selected vehicle no longer being used for the biz and the date.
Then I selected percentage of biz use varied per year (since percentage of biz miles out of my total miles I drive the car changes each year)  Note: I also tried selecting none of these apply and it made no difference the program still showed a gain.

Trade in of the vehicle brought 750. TT says to only enter biz portion and my biz use of vehicle is showing by tt on the page to be 16%, so I entered sale value of $120.

The FMV when I put the car in service for the biz was $1500, so I put $1500. (should this be only the biz percentage of the value when I put it in service which would be $240??)

Basis for gain/loss I left blank

Prior depreciation equivalent (based on biz miles x appropriate mileage rates  in chart provided)= $1044 total for all years

After all that, TT says I have a gain of $120 (the sale price). My adjusted basis should be $456 (1500-1044) and the sale of the vehicle for $120 should be a loss. But no matter what I try, it shows as a gain of $120 and charges taxes as a result.

What am I doing wrong?? I've played around with the numbers and no matter what I do I cannot get it to show a loss?

[RobertG]

Actually, you have a gain. 

Your basis in the business portion of the vehicle when you placed it in service was $240. You depreciated that down to zero. Depreciation only applies to the business portion of the vehicle, but it can't go below zero. Therefore, the $120 you got for it is a gain.

You should not leave the basis part blank. Your basis is the FMV of the business portion of the vehicle when you placed it in service. But that should not change the amount of the gain.

[ejbrk]

Ah, I see.  I did not realized the value was also being multiplied by the business use percentage   In this case I suppose the gain is the same either way, but for future reference, is Turbo tax automatically adjusting FMV I enter down to the business portion? Meaning should I put the full value at $1500 and TT will automatically adjust, or do I need to enter the adjusted amount  of 240 on that line myself?


Also, can you clarify so I'm sure- that amount I enter for the Vehicle Cost section, (either the purchase price of FMV price) should also go into the next section called "lets get info on your gain or loss basis" section, where it asks for basis/gain loss (enter 100% of basis ) as well as basis for AMT basis gain/loss (100% of basis ) ?

And the next section for prior depreciation equivalent must then be 240 (Even if the full amount is 1000) since the depreciation cannot exceed the original value? Or should I be putting both the full value amoutn of 1500 for the value and then the full depreciation of 1000 in the prior depreciation section?

Is that all correct?


What I'm not following is, for experiment sake, if I type in the value of the car was 10,000 when I got it/it went into service and type my prior depreciation is1000, and purchase value (business portion) was the same 120, shouldn't I have a huge loss? When I did this to test what would happen, it showed only a loss of $243. Is this because TT is automatically calculating biz percentage of the 10000, making it 1600? But even then, with 1000 depreciation, shouldnt I have a bigger loss since adjusted value is 600 and I got 120 from the sale? What am I missing here?

[JosephF8]

The only thing I see missing from your test question is the amount of current year depreciation taken from this year's mileage. This is figured at 26 cents per mile for 2019.

[ejbrk]

The prompt from Turbo Tax specifically says 2019 has been calculated for me and not to include it  when figuring prior depreciation...

[ejbrk]

Also, I am still unclear if I'm supposed to enter the full FMV of $1500 and assume TT will calculate the biz percentage, or if I need to enter just the business portion of FMV?

[VictorW9]

No, you should be using the trade in value as the sale price. TurboTax does not calculate the business portion of the vehicle, you enter the business portion which TurboTax will use to calculate the gain or loss of the vehicle. You should not be entering $120 anywhere in TurboTax.

[ejbrk]

Victor, Can you clarify why trade in value is not the same as sale value?   I read another thread on these forums where an "expert" specifically said they were the same... 

(Sorry, I misread your reply initially, I thought you said trade in value was NOT sale value so I was confused)

[VictorW9]

You said the trade in value was $750 and the FMV was $1,500. Clearly, they are not the same. Yes, I did say that the trade in value is the same as the sale value. Hence, the reason I said you enter the full $750 trade in value rather than you doing the apportionment yourself to what I believe you have 16% of $750 to arrive at $120. TurboTax should do the apportionment and you just have to tell TurboTax what is the business use of the vehicle.

[Edited: 2/11/2020 | 4:22pm]

[ejbrk]

Sorry I misread part of the previous reply, I thought you were saying trade in value was NOT sale value... But anyways, I'm getting conflicting information here- either that or people are unclear what Turbo tax actually wants entered for these fields and the instructions on these particular pages.

Turbo tax asks for sale value, which I am equating to my trade in value of $750. So far Victor and I are the same page there. However Turbo tax asks you to specifically only enter the business portion of the sale value, so I entered $120 since my biz portion is 16%. The instructions on the screen very clearly say you need to calculate that business portion of sale value yourself and enter only the business portion in the field on that page.

Then, on the following screen that asks about FMV when the vehicle was placed into service for the biz( which in my case was $1500), but there is no clear instructions on if this should be the full FMV or only the business portion  that gets entered on the Turbo Tax screens.  I'm being lead to believe (understandably so at this point) that in order to calculate my loss or gain the business portion of FMV would be used against the depreciation, but as I said it is completely unclear if Turbo Tax wants me to enter the business portion of FMV as there are no specific instructions clarifying on the the screen.. I would assume since it didn't calculate the business portion of the sale value, that it isn't calculating the biz portion of the FMV, BUT if I enter a FMV of 1500 and the depreciation as 1044, it says I still have a gain of 120, (and with those numbers I SHOULD technically be showing a loss, UNLESS turbo tax is automatically calculating only the biz portion of that 1500) so I have to assume it DOES calculate biz portion of the FMV but is DOES NOT calculate biz portion of Sale Value...

Is that making sense?  It's all quite confusing and the instructions certainly are not super clear on all these screens about what numbers are supposed to be entered, so I'm trying to get clarification. But again, it seems like I'm getting mixed opinions here.

I'm also saying that when I tested a FMV of 10000, with a prior depreciation of 1000, the amount of loss it's showing doesn't add up how it should against my sale value of $120 (EVEN IF turbo tax is autmoatically making the FMV my business portion of 1600, the loss it shows STILL doesn't make sense against my $120 sale value, so I am having trouble making heads or tails of how Turbo Tax is actually calculating these numbers.

 It would help if I could see the preview of what the actual tax form fields looked like after entering my info to see if it's imputing my exact numbers I'm putting in these fields or if it's autmatically calculating the biz portion of FMV for me and putting that as the value on the final form, but I can't seem to preview my final tax forms filled in at any point in the review process  unless I've missed where that is?

[VictorW9]

I guess you are using the TurboTax online version since you can get access to forms view with the CD/Desktop version. For TurboTax online you only peek at your 1040 only.

[jack73]

Same issue, but more extreme example:
Sales Price (Business Portion Only): $2176  (vehicles used for business 14.5% of the total mileage)

Vehicle Total Cost (doesn't ask for Business Portion Only, so this is price paid): $17,977
Basis for gain/loss (enter 100% of basis): Blank, because it was not acquired via trading in listed property, and in the initial year, it was for personal use
Prior Depreciation Equivalent (used mileage based expensing): $1,335
Installment Sale: No

"Your gain is $2176"

My purchase price minus depreciation is $16,642. How can it even calculate the business gain, if it doesn't know the business portion of the purchase price?

If I use 14.5% of my purchase price to calculate the "Business Use" portion of the total purchase price of $17,977 we get $2,607.  Subtracting $1,335 depreciation from the $2,607, I get $1271 adjusted basis.  Subtract that from the sales price of $2176, I get a gain of $904.

How is the gain calculated as $2176?
@Carl ?

[jack73]

I may be on to something.  Looking at the form, it looks like maybe it is trying to depreciate the entire vehicle, as if it were owned by the business.  It's talking about 5 year asset class and this being year 7 of depreciation, with a depreciable basis of $895.  Not sure how you get to that, but if the business portion of the vehicle is a 5 year depreciable asset, then the entire Business portion of the purchase price would have been depreciated to $0, so any money received for the business portion of the vehicle would be a gain.

Mystery solved?  But doesn't seem right, as we were not claiming depreciation, we were just claiming mileage deductions.

[HopeS]

If you sell a vehicle for which the standard mileage rate was used for deduction purposes in your business, there is a depreciation adjustment that must be made when accounting for the sale on your tax return. Because depreciation expense was already included in the Standard Mileage rate (the IRS figures it into the calculation of the rate each year), this depreciation amount must be calculated in order to adjust the basis of the vehicle when you sell that vehicle.

See the example in IRS Publication 463, page 24. Click on Travel, Entertainment, Gift, and Car Expenses.

IRS Publication 463

@jack73 

[jack73]

And that amount was calculated and reported.  But it appears that TurboTax is doing something else that is reducing the adjusted basis to $0, as any amount that is reported as the business portion of the sale, TurboTax is saying that amount is the gain (same issue as original post)

Sales Price (Business Portion Only): $2176  (vehicles used for business 14.5% of the total mileage)

Vehicle Total Cost (doesn't ask for Business Portion Only, so this is price paid): $17,977
Basis for gain/loss (enter 100% of basis): Blank, because it was not acquired via trading in listed property, and in the initial year, it was for personal use
Prior Depreciation Equivalent (used mileage based expensing): $1,335
Installment Sale: No

"Your gain is $2176"

Looking at Form 4797, it shows:
Line 19a: VehicleX Acquired 6/30/2016, sold 8/6/2022
Line 20: Gross Sales Price: $2,176  (this is the amount I entered as Business portion of the sale)
Line 21: Cost or other basis plus expense of sale: $895  (I did not enter this anywhere)
Line 22: Depreciation (or depletion) allowed or allowable: $895 (I did not enter this anywhere)
Line 23: Adjusted Basis.  Subtract line 22 from line 21: $0

Line 24: Total gain. Subtract line 23 from line 20: $2176


So, how is TurboTax calculating lines 21 and 22?