1. You received a different car in exchange for your car in a round about way. Had you signed the title over to your mom, then we could call it a gift. Signing it over to a car dealer, says you got something out of the deal. The least would be $1,500 since that was the credit allowed. Your mother sold you the new car for $1,500.Your mother effectively acted as your broker in the buy and sell process.
2. The original purchase price is your first basis in the car. What you paid to start with is the beginning point.
- A better example: Paid $60,000 for a car. Used it for a few years and then switched to business use. Car values really slipped and it was only worth $25,000 when you switched to business use. Then depreciated it for $20,000. Your basis in the car for sale is 60,000-20,000=$40,000 basis.
- Meanwhile, using your method, you would have a much lower basis, $25,000- $20,000 = basis of $5,000, which is not correct.
- This is one of the few areas where the tax laws are in your favor to sell for a higher amount and not be taxed on it. If we sell the car for $30,000, much better to have a loss of $10,000 than a gain of $25,000.
3. Yes. Depreciation would be the total of all actual depreciation plus the correct amount from the standard mileage. If you used actual expenses, you can add the total depreciation taken each year. If you took the standard deduction, part of it was considered depreciation. Your program may have the totals if you were with us the whole time. Best to double check. For 2020, it was 27 cents per mile driven. For 2019, 26 cents per mile. For 2017 and 2018, 25 cents per mile, 2016 was 19 cents per mile.
I hope this helps the mud to be a little less murky. This is an area where many fear to tread. I am impressed with how you have dug in.
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