Vehicle partially used for business since 2005 - always took standard mileage deduction

[Katharine55]

I have a 2005 SUV that I've used part-time for business since 2005.  I take the standard mileage deduction each year using the actual mileage, splitting it % wise between business and personal.  The suv got a blown head gasket mid 2022.  It's sitting in my front yard since then.  I don't know if I will repair it, donate it or sell it for $1-2K.   I had to buy a new truck.  

TT is now trying to get me to calculate and pay back the depreciation of the old suv SINCE 2005.  That doesn't seem right and if it is, that's a huge amount of money!  Help!!!

[MarilynG1]

Yes, if you have been claiming Standard Mileage, part of that deduction is depreciation.

Indicate in TurboTax that you 'stopped using the vehicle for business'.  You can use a Sales Price of $0.  

You will need to calculate the amount of Depreciation Taken, using the Depreciation Equivalent Tables.

Multiply the number of Business Miles you claimed each year by the amount shown for that year in the following table (page 24 in IRS Pub. 463) to determine your 'Prior Depreciation' amount to enter in TurboTax. 

It is possible to have a Gain on the Sale/Disposition of a Business Vehicle, depending on how long it was used and % of Business Use. 

Once you have determined the current cost basis of the vehicle (business portion of value when placed in service, less depreciation taken) and the Sales Price (if sold or traded in), TurboTax will calculate a Gain/Loss for you.

Click this link for more info on Disposition of a Business Vehicle. 

@Katharine55

[AmeliesUncle]

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@MarilynG1 wrote:

Indicate in TurboTax that you 'stopped using the vehicle for business'.  You can use a Sales Price of $0. 

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Absolutely DON'T enter a sales price of $0.   Say you converted it to personal use.

If/when you sell it, you would report the sale in the "Sale of Business Property" section, using your MANUALLY calculated numbers.  TurboTax is NOT set up reporting assets/vehicles that varied in business percentage, so you either need to manually do some calculations or go to a tax professional.

[Katharine55]

I'm trying to understand what they are trying to capture.  

So, are you saying:   If the suv's original purchase price of say $35K, then if the total depreciation from all 2005 to 2022 totals more than the $35K, that's what I have to pay tax on?    

Also how can I value the car at 0 when I haven't done anything with it yet in 2023.   Seems like this shouldn't even be calculated in 2022 until I really do dispose of or donate the suv.  

Also, I don't know if I even have my returns back from 2005 to probably 2015 to figure out the mileage used in the early year returns.

Thanks for the further help.

[AmeliesUncle]

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@Katharine55 wrote:

If the suv's original purchase price of say $35K, then if the total depreciation from all 2005 to 2022 totals more than the $35K, that's what I have to pay tax on?    

Also how can I value the car at 0 when I haven't done anything with it yet in 2023.   Seems like this shouldn't even be calculated in 2022 until I really do dispose of or donate the suv.  

Also, I don't know if I even have my returns back from 2005 to probably 2015 to figure out the mileage used in the early year returns.

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No, you don't need to pay tax on the excess depreciation.

You are correct; that is why my comment said to NOT enter a sales price of $0, but to say you converted it to personal use.

You need to find them.  You are a business owner and are required to keep track of everything, incluiding depreciation details about the vehicle from many years ago.

[Katharine55]

Ok...just trying to comprehend with a clear understanding of the methods being used here to handle this matter.

Then, you are saying I use the irs formula times the mileage I took each year up to $35K for the years from 2005 until I reach the $35K (or whatever the original purchase price was).  Let's say I reached the $35K in 2015.  Then I would not be calculating depreciation for years past 2015...or does Turbo Tax automatically do this for me?

[GeorgeM777]

Yes, if you recovered the cost of your vehicle in 2015, then your basis in your business vehicle would be zero.  If you were to sell your business vehicle, then as noted in a previous post some of that depreciation might have to be recaptured, and yes, TurboTax will calculate the amount, if any, that needs to be recaptured.  

Let's assume you continued to use your vehicle for business after you have fully recovered its cost through the use of the standard mileage rate, IRS guidance provides that you can continue to use the standard mileage rate with no adjustments to such rate.  IRS Publication 463 provides the following:

Depreciation adjustment when you used the standard mileage rate. 

If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the Rate of Depreciation Allowed in Standard Mileage Rate table, later. You must reduce your basis in your car (but not below zero) by the amount of this depreciation. 

If your basis is reduced to zero (but not below zero) through the use of the standard mileage rate, and you continue to use your car for business, no adjustment (reduction) to the standard mileage rate is necessary. Use the full standard mileage rate (58.5 cents (0.585) per mile from January 1–June 30 and 62.5 cents (0.625) per mile from July 1–December 31 for 2022) for business miles driven. 

These rates don’t apply for any year in which the actual expenses method was used. 

IRS Publication 463 at page 24.

@Katharine55 

[Katharine55]

Thank you so much George.  That was a very nicely done explanation.  I appreciate it.  

I went back and entered all my mileage since I started using the suv back in 2006 to 2021.  I then multiplied that number times the depreciation chart figures from TT and entered that in my 2022 return.  I had selected 0 or left blank the amount for the sale of the vehicle since it has not been sold and right now is just scrap with no real value.  After doing so and answering all of the other TT questions relating to the vehicle, the bottom line for my refund remained the same.  As if, TT decided I didn't owe any repayment.  Is this how it can work out?  From everyone's comments, it sounded like I would have to repay all that depreciation portion back to 2006.

[KrisD15]

You only repay the depreciation you took, which you now need to give back, because you "recouped" some of it when you disposed of the vehicle. 

If you scrap it, there is nothing recouped, so nothing to pay back. 

If you have an asset worth 10,000 and it has a five year life, and you use Straight-line depreciation, after four years, you would have depreciated  8,000. 

Now the "adjusted basis" is 2,000. (10,000 - 8,000 = 2,000)

If you sell it for more than 2,000, there would be depreciation recapture. 

If you sell it for 2,000 or less, there is no depreciation to recapture. 

If you scrap an asset, you haven't "recouped" anything. 

If the asset was completely depreciated, there would be nothing to report. 

If the asset was not completely depreciated, there may be a business loss. 

[rrbunge]

TT is calculating it differently than that for me.

2016 Honda was used by an UBER driver in which they used the standard mileage 2016 - 2022.  Car's cost was 45,000.   Depreciation using the cents in the Pub 463 table on page 24 through 2021 is $56,525.  Clearly the basis is zero.  Car was sold in August, 2022 for $12,000 and Business % is 79.59%.   TT is showing a capital gain of $9,550.80 on Line 7 of the 1040 AND $35449.20 as Ordinary Income calculated in Part III of Form 4797.  This depreciation has already been applied against income.  Is this correct or what am I doing wrong?

Thanks so much!

[AmeliesUncle]

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@rrbunge wrote:

TT is calculating it differently than that for me.

Is this correct ?

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No, it is not correct.

TurboTax can not calculate the sale of a vehicle (or other asset) that has varied in business percentage from year to year.  So you can't report the sale in the vehicle section.  You either need to manually calculate things and enter it in the "Sale of Business Property" section, or go to a tax professional.