Thank you, I think maybe I finally understand how the math, and the logic, works for selling the car used in rental activity.
Basically, since I used the car for business, and personal needs, I have to allocate the purchase price as to how much did i pay for the car for personal use, vs how much did I pay for the car for business use. In my case I bought the car for $2,500, and since i used it 25% for business, the IRS views that purchase as being $1875 for personal use (2500 x 75%), and $625 for business use (2500 x 25%).
I took $1393 in depreciation, which reduced my income and taxes. Then, when I sell the vehicle, the business purchase cost of $625 is compared against the tax benefit I already received - which was $1393 (depreciation). Then, since my benefit of $1393 depreciation is more than my business cost $625 - I have a gain -that must be calculated. I sold the car for $400 - but that gain is limited to 25% of that $400, since the car was only used 25% of the time for my rental, so I have a $100 gain (25% of $400).
Is my explanation here correct?
