When I sell my business vehicle (sole proprietor) do I have to pay recovery tax if I claimed mileage deduction on it for 8 years? What if I claimed actual cost?

[Critter-3]

Part of the standard mileage rate used each year  includes a portion for depreication just like the actual expenses has depreciation or a 179 deduction.   So when you sell a business use vehicle you need to report the sale and recapture any depreciation if needed.  

[Mike9241]

see IRS PUB 463 page 24 for the depreciation amount per mile for each year

https://www.irs.gov/pub/irs-pdf/p463.pdf

whether you used actual costs and took depreciation or used the standard mileage which includes depreciation there can be recapture.

you need to determine the basis of the vehicle which would normally be what you paid for it less the depreciation.  if you sold it for more than that, you have recapture. if less, you have a deductible loss.    this assumes 100% business use. different computations would be needed if there was personal use. 

[jhalla2j]

Thank you! I had read that once the business vehicle reaches it's "useful life" (i.e. 5 years for a vehicle) then I simply need to record the sale as $0 and don't have to pay any recapture taxes. Is that correct? Thanks again.

[Critter-3]

If the business asset is fully depreciated then any amount you get for the vehicle is all taxable as ordinary income because all of the sale price is recaptured depreciation.   And depending on the use over those 8 years ( using the standard mileage rate) you may not have fully depreciated the car.  If this was part personal and part business then more calculations are needed. 

[Anonymous_]

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@jhalla2j wrote:

....once the business vehicle reaches it's "useful life" (i.e. 5 years for a vehicle) then I simply need to record the sale as $0....

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No, you record the sale as the consideration (the amount) you received for the vehicle.

$0 simply indicates that the vehicle is fully depreciated (i.e,, you have reduced its depreciable basis to $0). 

[Mike9241]

don't know where you read that incorrect info. if you sell it you will have depreciation recapture even if you've owned it and used it in the business for 50 years

[Carl]

With the standard mileage deduction, a portion of that per mile deduction is depreciation. Since the per-mile deduction changes every year, so does the amount that is apportioned to depreciation. So one has to do the math manually. Thats why it's important to keep good mileage records every year. IRS Pub only goes back about 6 years. So if the vehicle was in use longer than that, there's a chart at https://bradfordtaxinstitute.com/free_resources/irs-mileage-rates.xml.aspx that goes back to 2002.

Note that if one has been using TurboTax for all the years the vehicle was in service, it's perfectly possible to get the start/end mileage each year (assuming you entered it each year) from the worksheets for each tax year.

With very few exceptions that I've seen, even with the required depreciation recapture It's not common to show a gain on the sale of what is essentially a used vehicle. It's more common to show a loss.  Therefore, on the business side there really would be no tax implications other than a possible business loss. It gets a bit more involved when the vehicle was not 100% business use since any loss on the personal use side is not deductible at all.

[Anonymous_]

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@Carl wrote:

IRS Pub only goes back about 6 years.....

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The IRS depreciation table goes back to 2000.