@markorec wrote:
ok so the correct way to calculate it is to multiply both the original purchase price AND the sale price by 80%?
For instance, in 2026 half a year depreciation is $4214 but another half a year waiting to sell the car may only reduce sale price by $2000.Eventually I am at zero basis but the car may still be worth 25K. So the longer I wait to sell, the more I will owe back in the year of the sale. Does that make sense?
Also, if I don't have exactly 80% business usage each year, Do I do a weighted average of all the years?
And if I put a new car in as a replacement in 2026, do I get half a year on the old car at $4214 and first year (20%) for the replacement? Is the half year the same no matter what date I actually replace it in 2026?
Yes, both by 80%.
No, you are thinking about it wrong. You get getting an extra deduction of $4214 (for both income tax and SE tax), but are worried it will eventually increase your income by $2214 (for only income tax)? If the vehicle was 100% business use and fully depreciated, you would be getting a $54,875 of deductions (for both income tax and SE tax), and you are worried about it resulting in $25,000 of income (for only income tax)?
- Or maybe I'll explain it this way: For simplicity, let's say you are in the 22% Federal tax bracket and SE tax is 14% (and for simple explanation, some of my numbers will be garbled with 100% business use). The extra $4214 of depreciation will save you about $1517 this year. When it is sold, yes, the "clawback" you are thinking of (an extra $2214 of income) will result in an extra $487-ish of tax. But saving $1517 now and only needing to pay $487-ish when it is sold is a GOOD thing.
You would use the average (not a "weighted" average"), based on the combined business miles of all years versus the TOTAL miles of all years (odometer reading when it was bought and the odometer reading when it is sold).
Yes, you would get half a year of the old vehicle and then the new depreciation of the new vehicle. In this case, yes, it is half regardless of when it is sold.
- When I say "in this case", it is because your first year was subject to half-year (a full first year is actually 40%, but the 20% you used has the half-year built in to it).
- There are some circumstances that the half-year rule is changed to a mid-quarter rule, but because you bought the vehicle subject to the half-year rule (you said 20%, which is half-year), that is what applies to the sale.
