Thank you! I finally found the bell in the right hand corner above and then your reply. The email I received (from TurboTax telling me I had a reply from an expert) included a link to log in to my TurboTax account. There were no messages there.
If I understand you correctly, I have to calculate 30% of my cost basis, subtract the cumulative depreciation taken, and then compare it to 30% of the insurance payment. That does produce a gain equal to about 54% of my depreciation, so that 54% is a taxable recapture at my ordinary tax bracket. And there is no unrecognized gain to carryforward to my new car.
The TurboTax software can't handle this. The software gives a warning that it can't accommodate it when the business use % varied over the years. Unfortunately, it gives no hint of what to do - they really need to update the software to give the option specifically for totaled cars.
After many hours of research (including some time with live experts, who tried but weren't sure how to deal with the software), I finally found my solution. And you confirmed my question regarding how the IRS determines the taxable amount. In the Vehicle Expense Section under Business Expenses, I reported the car's date of disposition and input zeros for the basis and proceeds which gave me no taxable income. Then I went to the Sale of Business Property Section to input the correct 30% basis, 30% proceeds and total depreciation, which gave me the correct amount of taxable income.
Hopefully others in the same situation will find this thread.
