Turbo tax depreciation recapture

[DeeStall]

Good Morning.

Last year we sold a vehicle that was used more than 50% for business over 26 years.  The business use last year was 58%.  We sold the vehicle for $500 and the Business use part of the sale was $290.  The vehicle was fully depreciated and we used actual mileage each year.  The Vehicle Basis was 19,572 in 1999.  The Section 179 deduction was 15,984 (The vehicle was used when we bought it). Why is turbo tax adding a $3000+ in depreciation recapture to my income?  I'm thinking that I've entered something wrong in turbotax.  I'm thinking I should only have to pay tax on the $290.  I want to make sure I'm doing this right.

[DianeW777 · Accepted solution]

You are correct, you should be paying tax on only the actual money you received for the vehicle and only the business use percentage.  Vehicles can be difficult due to the constant change of business use versus personal use.  The following information will help so that TurboTax uses the appropriate gain. It would make sense the the full amount for the business portion would be taxable since you have deducted the business percentage of cost.

The correct action is that you have taken this vehicle out of service (sold, disposed of, etc). For tax purposes, when it was sold you have created a taxable event.  The information below will show what to select so that the vehicle will not come up again and this starts at the federal return. In your case actual expenses were used so the standard mileage rate (SMR) is not a factor.

The way to report the sale is as follows. You have all the records so it should provide you the detail to move forward.

1. All business miles for all years and then total miles for all years - divide business miles by total miles to arrive at your overall business use percentage for the life of the vehicle. You will use this percentage times the selling price (trade-in value) to arrive at the business selling price. 
2. Since  you did not use the SMR, use the depreciation you actually deducted each year your vehicle was used for your business. You may have already calculated this since you had the vehicle for so long.
3.  When go to the vehicle information under your business you can select 'Sold, disposed of, etc....' then do not indicate it was sold.  You must say 'Yes' it was converted to personal use.  This will eliminate any sales information in the vehicle itself.
4. Once you have completed the information in that section you will follow the steps below to enter your sale:
   1. Go to Other Business Situations
   2. Scroll to Sale of  Business Property
   3. On the next screen select Sales of business or rental property that you haven't already reported
   4. Use the information from step one and the depreciation from step 2 to complete your sale
5. If the personal portion of your vehicle is a loss there is nothing to report for that portion of the sale/trade.  If the personal portion is a gain, then you would report that portion as a sale of investment property.

Once this is completed your sale will be recorded properly on your return. 

[DeeStall]

Thank you for the detailed  explanation.  I appreciate the quick response.  Thank you so much!