sale of vehicle during tax year which was used occasionally for business

[KR202526]

Hello.  So here's my situation.  I started using my only auto in 2023 for a side hustle business.  I've tracked my business miles each year and have used the standard deduction.  I traded the car in in 2025.  I'm using the turbotax desktop software home and business.  Near the beginning it asks for info about the vehicle.  One question is if i stopped using the vehicle in 2025, and when I sold traded it in, gave away, or stopped using it.  I select the box and enter the date i traded it in.

I then go through and enter all the relevant info for the mileage, ect.  It then asks if any of the following apply:

[you started using it as a personal vehicle 100% of the time at any point in 2025]

[your percentage of business use of the vehicle varied over the years]

[you gave it away as a gift . . . ]

[none of these apply]

In looking at my past tax returns, my percentage of business use has varied slightly (6.16%, 15.33%, now 10.55%).   So I assume I must select the varied use box (not sure how anyone would ever not have a varying percentage over the years).  When I select the varied use option, it then asks if I converted the asset to non-business use.  It states something about reporting "recapture" (whatever that is) if I did convert it to non-business use.  I assume thought that I am to select no?

It then asks for the business portion of the sales price, which it explains is normally the percentage of business use times the sale price.  This is the first place that I am really stuck (unless I chose wrong somewhere above).  In the explanation/instructions it is noting the 10.55% (for 2025).  However, I assume that since I checked the varying percentage option earlier, that I have to do some sort of different calculation?  If so, how?  If I was to average the business use percentage for 2023-2025, it would be 10.68% (almost the same as the 10.55% for this year).  What do I do here?  My guess is to average the 3 years and take that percentage times the trade in price?

It then wants the fair market purchase price of the car when it was placed into business use (yikes!).  Ok, I can google that and get an estimated fair market value at that time.  But... do I really need to do all of this?  It seems like i'm going down an unnecessary rabbit hole.  Why does any of this matter when I took a standard deduction each year?  Am I on the right track here with what I typed above?  Thank you so much!!

[AmyC]

Your logic is sound so let's go through what you really need and why. Items sold at a gain for personal use, are taxable. Personal items sold at a loss are not deductible. Business items create a gain or loss regardless. Your car is part personal item and part business item. I am going to assume that you sold the car for less and lost money on the personal side. For the business side:

The percent business use, basis, depreciation and sales price are needed to determine if you have a business gain.

• Business use percentage: total miles driven for business divided by total miles driven = business percentage for time in service.
• Your basis: lower of cost or fair market value when converted to business use times the business percentage.
• Depreciation. The standard mileage rate includes a portion for depreciation. 
  1. Use your 2023 business miles x 0.28 (standard mileage of 65.5 cents)
  2. Use your 2024 business miles x 0.3 (std is 67 cents per mile)
  3. Use your 2025 business miles x 0.31 (70 cents per mile in standard)
  4. Total the 3 years of depreciation from the standard mileage rate
• Sales price is total sale plus expenses x business percentage

When you go through your return, you will see the sale on Form 4797 gain in Part III, review lines 19-25 and a loss is reported in Part I (since you held it over 1 year).

[KR202526]

Thanks for the reply Amy, I greatly appreciate it.  I've worked through the section of the turbotax software, and I have reviewed what you provided.   When you talk about my "basis", you mention "fair market value when converted to business use times the business percentage".  The software is asking for the fair market value when I placed it into service.  But it is not telling me to times it by the business percentage.  Would it be doing that automatically for me in the background?

The end result of this section's calculations is that I have a gain of $1,820.  I really don't understand how I could have such a huge gain.  Is this saying that the depreciation I've received for 2023, 2024, and 2025 that was contained in my standard milage deduction is $1,820 more than..... something? More than what?   The total depreciation contained in the standard mileage deduction is only $167 (2023), $1,444 (2024) and $979 (2025), for a total depreciation of $2,590.  How can $1820 of that be extra depreciation I wasn't entitled to?  Does something seem wrong?

Thank you again!

[DianeW777]

No, you must enter the business portion of the fair market value (FMV) when placed in service, TurboTax will not calculate this for you. 

Once you have gathered the information detailed for you by our tax expert @AmyC, in the vehicle itself you do want to say it was converted to personal use. This stops TurboTax from carrying it forward to the future. The varied business use can make it complicated when sold. 

Next, you will enter only the sales information using the steps below.

1. Once you have completed the information in the vehicle section you will follow the steps below to enter your sale:
   1. Go to Less Common Business Situations
   2. Scroll to Sale of  Business Property
   3. On the next screen select Any Other Property Sale
   4. Use the information from step 3 and the depreciation from step 6 to complete your sale
   5. Select Sales of business or rental property that you haven't already reported.
   6. Answer 'Yes' to Do all of the following apply...?
      1.  Description of the Property (Vehicle make/model/year)
      2. Sales Price/Sales Expenses 
      3. Date acquired and date sold
      4. Cost - business portion of FMV
      5. Depreciation
2. If the personal portion of your vehicle is a loss there is nothing to report for that portion of the sale/trade.

Annual Depreciation Component Breakdown (Standard Mileage Rate IRS Pub 463)

@KR202526 

[KR202526]

@DianeW777 Diane, thank you so much for jumping in on this, it is greatly appreciated!  I did as you and @AmyC  Amy stated and chose that I converted it to personal use.  At that point TT says that I have to report the sale of the business property under the same exact section that you have directed me to use.  It also, however, states that I must ensure that the recapture box is checked.

I went to the section you and TT said to go to, and I checked the Sales of Business property not previously reported.  It also has the recapture box checked where it says "a recapture of a previously taken section 179 or listed property deduction.  I then move on to these entries....

Here are my entries:

My total sales price is what I got for the trade in times business use percentage over life of use (14%).

Cost (tax basis) is FMV at time I placed into service times the 14% business use.  Depreciation taken is the depreciation part of the standard deduction for each year, added together.

Does that above sound right?   Now I'm stuck:

I choose no, then this comes up:

I leave that blank.  Then this comes up:

I HAVE NO CLUE WHAT TO DO with that last one.  It didn't fall to 50% or less for the first time in 2025.... it's always been less than 50% use in the business.  So do I choose no?  If I choose yes, it goes into a bunch more craziness.  If I chose no, its done and shows this:

Its showing Sale of Business Property as $1,865.  No idea if that is correct?  Is that like a capital gain like I was getting before I marked that i converted it to personal use?  Thoughts?

I cannot thank you enough for your invaluable help Diane and Amy (and others that have tried to help)!

[DianeW777]

Yes, you have completed the Sale of Business Property correctly. You can continue to file your return.

No is the correct answer to the following:

1. There are no 'Sales of Other Types of Business Properties', 
2. Nothing to enter in 'Gross Proceeds' for another sale of other property types
3. No to business use drops to 50% or less in 2025 - you are correct in your rationale.
4. The sales profit is correct because the business cost basis is now below zero based on the depreciation taken.
   1. The gain cannot be more than the selling price, assuming your cost basis is reduced to zero after depreciation. If you had greater depreciation than the business cost, then your gain is maxed at the selling price of $1,820.

@KR202526 

[Edited: 03/21/2026 | 6:41 AM PST]

[KR202526]

@DianeW777  Diane, I cannot thank you enough.  Thank you thank you thank you!

Thank you to everyone else as well who has helped.  The conversations have been invaluable.

[KR202526]

Would this gain need to be reported on PA state return?  Turbotax doesn't seem to have it listed in the Schedule C anywhere under income (I assumed it would be transferred in from the federal).  If it needs to be reported, where do I enter this?  Thank you!

[KR202526]

nevermind, I see it on Schedule D

[KR202526]

@DianeW777    Hi Diane.  This seems to never end.  I have moved onto the state return (Pennsylvania).  This comes up:

Then this:

(FYI numbers are slightly different that I shared before, as I obtained a more certain FMV for the earlier steps on the federal return than what I initially used).  But the 1820 sale price listed in this screen shot is still the same (13,000 x 14% business use).  Not sure where the 70 cost basis comes from?  I feel like I should NOT check that this asset was used for business and personal use, as the sale price listed here is only the business portion.   If I leave all boxes unchecked and click continue, it then does this:

Then this:

I really don't understand what do with this... it has boxes to enter net sales price and cost basis.  I don't even understand what cost basis is really.  What do I do here?  If I leave everything blank and click continue, it then shows this:

This 1750 is the gain listed on my federal.   Can you please help me with this?  This is all so frustrating.... THANK YOU!!!

[DianeW777]

First, note that I corrected the total gain on the federal which should be a maximum of the sales price since your cost basis is reduced to zero by the depreciation. This is based on the numbers you entered on the Sale of Business Property in your screenshot (Cost less depreciation = $0 | Sale price $1,820 minus $0 = $1,820). 

This should also be the final result on the PA return. I can only assume the entries are different than on your actual return to arrive at a $70 cost basis reducing the gain to $1,750. If this is correct, you can proceed since the PA also matches the federal.

@KR202526 

[KR202526]

@DianeW777    Thanks Diane.  I actually hadn't realized you adjusted the total gain.  You assume correctly that my new numbers (based on a more solid and accurate FMV when I placed the car into service) changed the numbers slightly to end with a 1,750 gain.

After posting the recent screen shots, I realized that the current issue is that there are TWO asset sales coming up when I get into the state return.  See this screen shot:

It appears to me based on my best guess that the "Honda Civic" listed may have got added to the federal back before I switched it to converted to personal use as you instructed earlier in this thread.   I had originally been trying to enter the sale info and then went back and selected the converted to personal use selection.  Then I went to the less common business section that you instructed and I entered the sale (2021 Honda Civic EX listed in the above screenshot).  This would explain when the numbers were filled in on this entry and I was just to confirm them during the state return process.  Then for the entry of Honda Civic, the number boxes were empty and I didn't know what to do with them and left them blank.

I now see that there are two entries for the same car.  I cannot find anywhere or any way to fix this (by deleting the "Honda Civic" entry).  Does my guess as to what is going on make sense?  I'm thinking I am going to have to delete the entire return and start ALL OVER???  :(    I assume it is possible to delete the entire return and start over?  I don't know how else to fix what looks like a double entry.

[DianeW777]

You are correct about how you handled the process. If you answered any questions originally, and then went back to select 'converted to personal use, It's all right to finish your return as is, since you didn't add any numbers to the second question on the state return as long as no errors stop you from filling.

If you want you can go back through the Honda Civic/Vehicle entry, to change the selection about 'Personal Use' so that you can complete the section removing any data you may have entered earlier. Once you do that, you can go back to say it was converted to 'Personal Use' and it should remove the second sale. There shouldn't be a need to completely start over.

@KR202526 

[KR202526]

@DianeW777    I am at my wits end  :(    I did end up completely starting over, and the double entry is still there.  And when the TT does the check for errors on the state return, this comes up:

This "Honda Civic" entry should not be there, and I cannot for the life of me figure out how to get rid of it.  It has to be coming from my entry of business miles in the federal return and the questions surrounding the same.  I mark that I stopped using the car in 2025.  then enter the mileage info, ect.  Then I mark that I converted it to personal use where it has that question.  Then I go into the Less Common Business section and do the sale of business asset, which is the 1750 gain in the first entry on the above picture.  I don't know what to do....

[AmeliesUncle]

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@KR202526 wrote:

I started using my only auto in 2023 for a side hustle business. 

---

The short answer is that TurboTax does not handle your situation and you should go to a good tax professional that knows how to handle it.

Even if you report the correct amounts under the "Sale of Business Property" section, it still often has wrong results.  Even though it may report the correct gain/loss (if you do it correctly, see my comment later), but it may wrongly be NOT affecting the QBI deduction when it should, and could wrongly not affect other items as well (for example, the Home Office limit).

If you owned your vehicle for personal use before you started using it for business, the prior comment about using the Fair Market Value and the average business percentage since it was converted to partial business use is mostly wrong.

You start off the calculation with the COST Basis (purchase price) and the average business percentage over the LIFTEIME you owned the vehicle.  If the results in a gain, then that calculation I just mentioned is what you need to use (if that calculation results in a LOSS, then there are more calculations before the final result).