Sale of business property: TurboTax states that the depreciation on Line 22 of Form 4797 can't exceed the cost or other basis (Line 21) for a truck I used in business and sold in 2024.

[Geoff30]

After I used the truck for personal and business use for 16 years, the aggregate depreciation I took exceeded the business portion (32%) of the original cost. I thought that excess depreciation is taxable as ordinary income, as well as the sale price; however, I get an error message during the federal review saying that Line 22 can't exceed Line 21. Form 4797:

Line 20. 2,905 gross sales price

Line 21. 9,741 cost or other basis

Line 22. 11,516 depreciation allowed or allowable

Line 23. <1,775 > adjusted basis

Line 24. 4,680 total gain

Since I fully depreciated the truck, it would seem to make sense that the recapture would apply to the excess depreciation plus the sale price ($4,680 total). I'm not seeing the error.

[KrisD15]

The only way you could have taken more depreciation than the value of the truck is if you used the Standard Mileage Rate. 

The Standard Mileage Rate has depreciation built into every mile. If you go over the number of miles needed to zero-out the vehicle, the additional depreciation built into the miles continues, but you needn't recapture that excess over the cost.

I question your use of 32% business use. If the numbers you are using represents 32% (of cost, sales proceeds, etc.) I would wonder how you used the vehicle for business every year for exactly 32% business and 68% personal. 

If your use fluctuated year to year, the TurboTax program cannot calculate the gain nor depreciation recapture properly. 

If your use fluctuated year to year, and there were years when the business use was more than 32%, the total depreciation taken would be more than 32% of the original cost/basis. 

[Geoff30]

Thanks!

The business use percentage did vary quite a bit year to year. The 32% was calculated by adding the business mileage for each of the years and dividing that total by the total mileage the truck was driven.

I didn't use the standard mileage rate.

The problem stems from the recent years when I used the truck relatively little for personal use. Consequently, TurboTax allowed a higher depreciation since the calculated business basis for those years was much higher than the total depreciation taken in prior years.

[DianeW777 · Accepted solution]

First, you have used up all depreciation on this business use vehicle because of the life of the vehicle.  

Your business use percentage of the original cost basis and depreciation expense used over the years should equal when entering the sale. You must report the full business percent of the sales price  as ordinary income.  The business percent of cost basis and actual business depreciation used can be the same amount so that TurboTax will tax the full  business portion of gain appropriately. The key is that any amount of gain that equals or is less than the depreciation taken will be taxed as depreciation recapture and not capital gain.

• Taxable gain: $2,905 gross sales price (maximum should be the business use percentage x actual sales price)
• You are not required to report as gain more than you actually received from the sale for the business portion, regardless of the total depreciation claimed.

The personal portion of the vehicle is assumed to be a loss and therefore is not reported.

@Geoff30