@cindybarber2 wrote:
I am sorry, but I do not understand. I only ever took the std mileage rate. So why is there depreciation? I bought the car for 6500, sold it for 6000. That is a $500 loss? I put approx 30K miles on it over the 2 years. Why do I pay tax on $6000 gain??? - I put my mileage in for this year, but then when I put the car sale in, the mileage goes away. is that part of the glitch?
The standard mileage rate includes an allowance for depreciation, it always has. About 25 cents out of the 58 cents is for depreciation. At 30,000 miles, you claimed about $17,000 of deductible business expenses for the car, of which about $7500 was deprecation. Since you claimed more depreciation than the car cost, it's depreciated value is $0. That makes the entire selling price a capital gain for the business, and you have to pay tax on the depreciation you previously took.
Let me try another example. A bakery buys an industrial mixer for $1000 with a 5 year life. Every year for the first 5 years they deduct $200 as a business expense for depreciation on the mixer. In year 6, they sell it for $200. Since they fully deducted the cost before, if they were also allowed to sell it tax-free, they would have gotten a $1200 deduction for something that only cost $1000. So instead, they have to recapture the depreciation they claimed that is now being paid back by the sale of the used mixer. Since the mixer is fully depreciated and has a "book value" of zero, selling it for more than book value is taxable income, just like selling bread for $1 that cost $0.20 to make is taxable income.
Your car is the same. You have fully deducted the price of the car as a business expense over the past 2 years. So anything you get for selling it is a reimbursement of a previous deduction. You have to pay tax on that.
