Reporting the sale of a vehicle used in rental property business

[hieye5]

I began my rental property business in 2010.  At the time, I had a minivan I began using for this business (minimal miles).  In 2012, I traded the minivan for a station wagon.  Trade in value for the minivan was $1,500.  Total Depreciation Equivalent for the minivan = $243 based on mileage.  Purchase price of the station wagon was $18,750 + $1,266 tax = $20,016 total.  In 2024, I traded the station wagon for an SUV.  Trade in value for the station wagon was $600.  Purchase price of the SUV was $44,800 with taxes.  Using the mileage I reported from 2012 through 2024, the Total Depreciation Equivalent for the station wagon = $649.  Since I traded in a vehicle when buying the station wagon and then traded the station wagon for an SUV, how do I calculate the station wagon's Vehicle Cost and Basis for Gain/Loss?  

[DianeW777]

The steps to calculate the sales price, cost basis and gain or loss are shown below for the station wagon.

A trade-in of a business vehicle is now a sale for tax purposes. This began with the Tax Cuts and Jobs Act (TCJA) starting in 2018. The trade-in value of the business vehicle is the selling price and has no affect on the cost of the vehicle purchased to replace it.

1. Minivan-Sold in 2012: Sold for $1,500 (trade value) and sales price if it had been used 100% for business use. However, you would use the total miles on the Minivan at the time of the trade, then calculate the business miles over the years.  
   • Business miles divided by total miles gives the business use percentage for the life of the vehicle.
   •  Multiply this by the sales price and the cost basis less standard mileage rate (SMR) depreciation portion to arrive at gain or loss.
     • Sales price minus cost basis minus depreciation ($243) = taxable gain or loss (business portion only)
2. Station Wagon: Purchase price $20,016 (assumes no trade-in used to calculate) - Sold in 2024 for $600 - follow the same steps above to arrive at the business sales price, cost, depreciation ($649)  to arrive at business gain or loss.
3. SUV: Purchase price $44,800  (assumes no trade-in used to calculate) - Current vehicle for use in rental property.

In the rental activity be sure to select your vehicle was converted to personal use. Follow the steps below to enter your sale.

Total all of the business miles for the life of the vehicle

1. Total all miles on the vehicle for the life of the vehicle
2. Business miles divided by total miles = Business Use Percentage for the life of the vehicle
3. Take the original cost of the vehicle x the business use percentage = Business Cost
4. Take the sales or trade-in price x the business use percentage = Business Sales Price
5. Calculate all of the business miles by year with the rate in the SMR for depreciation (chart attached) to arrive at the total depreciation considered used by the IRS.

Next enter your Sale of Business Property

1. Income at the top
2. Scroll down to Other Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter your sales information.
   1.  Description of the Property (Vehicle made/model/year)
   2. Sales Price/Sales Expenses 
   3. Date acquired and date sold
   4. Sales Price
   5. Cost
   6. Depreciation (it looks like you already know how to do this but for your convenience here is the SMR portion of depreciation

                                              

[hieye5]

DianeW777...I'm back!  Would you please see if I entered the correct numbers?  Turbo Tax is showing a total gain of $700 on the sale and it just doesn't seem right.  If there are costs I listed in the purchase price of the vehicle that are not allowed, please let me know.  Also, I added the trade-in value of the minivan to the cost of the station wagon (Ford Flex) that I used for my rental property.  I think that's the right thing to do.  I don't quite understand how TT determined prior depreciation numbers, but I'll be happy if you confirm I've entered things correctly.  Attached are screen shots to show what TT is providing me.  You will be my new best friend if you help me get this done.  😉

Price of station wagon (Ford Flex):  $18,750
Service Contract:  $1,875
Documentary Fee:  $250
Taxable Price (sum of above):  $20,875
6.75% Sales Tax:  $1,409
Title Fee:  $15
Registration Fee: $44
Subtotal:  $22,343
Trade-In Value of minivan: $1500
Cost Basis of station wagon (Ford Flex):  $23,843 (Subtotal + Trade-in value of minivan)

Business Miles:  2,698
Total Miles:  187,000
Business Use %:  0.0144 (2,698 / 187,000)
Standard Mileage Rate depreciation:  $670 (years 2010-2024)

Sale of station wagon (trade-in value):  $600
Business Portion of Sale Price:  $9 ($600 x 0.0144)
Business Portion of Original Cost:  $334 ($23,843 - $670 depreciation x 0.0144)
$9 (Sale) - $334 (Cost) = $325 Loss 

Schedule 1 shows a gain of $345
Schedule D, Part 2 shows a gain of $355
Form 4797 Shows a gain of $355 and a gain of $345

[DianeW777]

There is a taxable gain due to the excess depreciation over the cost and selling price and I do see it twice. It's important to select the vehicle was changed to personal use without making any entries in the vehicle itself about the sale. Review the entries so that the sale is entered only once under Sale of Business Property as outlined above.

Only you should be entering cost, depreciation and sales price in the  Sale of Business Property Section. You may have duplicated it by mistake. You will enter the date you stopped using it and you will select you converted it 100% personal use. 

• In the rental activity be sure to select your vehicle was converted to personal use.
• 
• 

Update here if you have additional questions.

@hieye5