Determining Cost Basis on Form 4797, Part I, Line 2f

[Aussie]

Background Info:

I am reporting the disposition of a car that was put into service for rental property use 2 years after being purchased (Purchased in 2011 and put into service in 2013). For the part-time business use, I only ever used the Standard Mileage deduction. I traded in the car in 2025 and will not use the new car for business purposes going forward. I am using TT Premier desktop and reflected the car was no longer being used for business and date sold on Part VII, line 43 of the Car and Truck Expense Worksheet for the rental property.

TT then directed me to fill out the Sale of Business Property which populates Form 4797. 

I understand how to calculate everything using the percentage of business use which was very little (2.5%). 

My question is solely for calculating the Cost Basis on Part I, line 2f of Form 4797.

What should this cost basis be based on?

The purchase price I originally paid for the car?

or estimated FMV at the time the car was placed into service? (as a side note I have no records of what the FMV may have been at the time)

For whoever responds, please reference the specific tax code that addresses this (specific section of publication).

Thank you in advance!

[AmyC]

It depends. A loss is only counted on the business portion while a gain can be personal and business.

• If you have a gain, you use the original 2011 purchase price
• If you have a loss, you use the FMV at conversion. You may want to look up the Blue Book value for that time frame.

I would not expect a gain on a personal vehicle - there is a much higher chance you have a business loss.

Pub 551 page 17 explains property changed to business use basis.

Pub 544 covers everything disposition related. You can use ctrl F to search terms.

[Aussie]

Thanks for the reply. I have 2 follow-up questions:

Page 17 of Pub 551 is very clear and uses a former home converted to rental property as an example.

Thank you for the reference. It does seem like this example is different in that a home which is itself depreciated over time is different than a vehicle used for part-time business purposes and is not itself depreciated the same way, especially if only the Standard Mileage Rate was ever used over the course of its life used for business.

1) Does this make a difference in how the Cost Basis is determined upon disposition of the vehicle?

Or does Page 17 of 551 always apply regardless of how the depreciation is calculated over time?

2) How would the following scenario be handled if you get a loss and a gain depending on what value is used for Cost Basis?

• If you have a gain, you use the original 2011 purchase price
• If you have a loss, you use the FMV at conversion. You may want to look up the Blue Book value for that time frame.

The 2011 purchase price x business use % = $900 - $400 ITD depreciation = $500 Adjusted Cost Basis

2025 Trade-in Value x business use % = $200 - $500 = ($300) loss 

The 2013 FMV when vehicle was placed into service x business use % = $550 - $400 ITD depreciation = $150 Adjusted Cost Basis

2025 Trade-in Value x business use % = $200 - $150 = $50 profit

@AmyC 

[DianeW777]

Here are the answers to your questions. Keep in mind you are selling only the business portion of your vehicle, not the personal portion (assumes loss based on age).

• 1) Does this make a difference in how the Cost Basis is determined upon disposition of the vehicle? OR does Page 17 of 551 always apply regardless of how the depreciation is calculated over time?
  • Page 17 always applies to the depreciable cost basis on the date of conversion - yes always. 
  • Basis for depreciation. The basis for depreciation is the lesser of the following amounts. 
    • • The FMV of the property on the date of the change, OR
    • • Your adjusted basis on the date of the change.
• 2) How would the following scenario be handled if you get a loss and a gain depending on what value is used for Cost Basis?
  • If you have a gain, you use the original 2011 purchase price
  • If you have a loss, you use the FMV at conversion. You may want to look up the Blue Book value for that time frame.

Simplified explanation is as follows: If selling for a gain, use the original adjusted cost basis (cost minus depreciation). If selling for a loss, use the lower of the adjusted cost basis or the Fair Market Value (FMV) at the time of conversion.

• Sale of property. If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you're figuring gain or loss. 
  • Gain. The basis for figuring a gain is your adjusted basis when you sell the property
  • Loss. Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss.
    • In the example: Start with the FMV on the date of the change because it's less than the adjusted basis (a vehicle will always be less than cost on conversion date) on that date. Reduce that amount by the depreciation deductions to arrive at a basis for loss.

All information is from Publication 551, page 17.

@Aussie