Mileage deduction for rental property and trading in the car for a new car

[Aussie]

I have been deducting the mileage for use of my car to drive to rental properties (about 4% of annual rental use). I have not been deducting any other auto expenses as it is a small percentage of use. In late December last year I traded in the car for a new car which I will now use to drive to the rental properties starting in 2026.

What is the best way for me to reflect this change in automobiles for my rental mileage deduction? I am using Premier desktop version of TurboTax.

I started down the path of reflecting I stopped using the car in late December and it then opened up a pandora box of multiple questions on value of the sale of the car (traded in, not sold) and how much had already been depreciated, etc. 

Thank you in advance for advice on how to handle this situation.

[ThomasM125 · Accepted solution]

The recommended way to account for the disposition of the vehicle is to indicate that you disposed of it in TurboTax and answer the associated questions in the program.

Since you used the auto for business, when you traded it in you are supposed to account for the gain or loss on disposition of the vehicle. It could result in taxable income or a deductible loss. You will need to factor in a depreciation deduction for each year you drove it based on a factor the IRS provides times the number of business miles you drove. The business cost less depreciation will be the cost basis of the vehicle which you will subtract from the business portion of the trade-in value to determine your gain or loss.

[AmeliesUncle]

Unfortunately, TurboTax is not set up to report the sale of an asset that has varied in business percentage from year to year.

Yes, if the vehicle was traded in, that is treated as a sale, and you need to know the purchase price, possibly the FMV on date it was first used for business, added up depreciation from the Standard Mileage Rate, average business percentage, and maybe more.

[Aussie]

Does it make a difference if I just choose to not claim the mileage for 2025 or going forward?

A lot of questions I don't have the answers to and the deduction was insignificant all along.

Had I known this hassle, I would have never claimed to begin with....lesson learned going forward.

[DianeW777 · Accepted solution]

It can seem challenging and it's up to you if you prefer not not use it in 2025, however you do need to properly dispose of the vehicle. I will provide the steps that will make it easier and less challenging. As indicated, due to the varied business use, not only in one year but over many years the best action is shown here. 

First find the information shown below and while you are in the vehicle section do the following:

1. When go to the vehicle information under your rental you can select 'Sold, disposed of, etc....' then do not indicate it was sold.  You must say 'Yes' it was converted to personal use.  This will eliminate any sales information in the vehicle itself.
2. Total all of the business miles for the life of the vehicle
3. Total all miles on the vehicle for the life of the vehicle
4. Business miles divided by total miles = Business Use Percentage for the life of the vehicle
5. Take the original cost of the vehicle x the business use percentage = Business Cost
6. Take the sales or trade-in price x the business use percentage = Business Sales Price
7. Calculate all of the business miles by year with the rate in the Standard Mileage Rate (SMR) for depreciation (chart attached) to arrive at the total depreciation considered used by the IRS.

Next enter your Sale of Business Property (do not enter any sales information in the vehicle asset)

1. Income at the top
2. Scroll down to Other Business Situations
3. Select Sale of Business Property
4. Select Sales of business or rental property that you haven't already reported.
5. Answer 'Yes' to Do all of the following apply...?
6. Enter your sales information make an entry for depreciation
   1.  Description of the Property (Vehicle made/model/year)
   2. Sales Price/Sales Expenses 
   3. Date acquired and date sold
   4. Cost
   5. Depreciation

Annual Depreciation Component Breakdown (for more years see the chart in IRS Pub 463)

• 2025: $.33
• 2024: $.30
• 2023: $.28
• 2022: $.26
• 2021: $.26

@Aussie 

[Edited: 02/26/2026 | 4:11 PM PST]

[Aussie]

@DianeW777 

In your reply you stated "Enter your sales information, do not make an entry for depreciation (no zeros)"

Why do I not enter the cumulative depreciation amount calculated based on business miles driven times the mileage depreciation rate for each year?  If I don't enter anything here, then TurboTax doesn't know what depreciation was previously included.

Please clarify, thanks!

[AmeliesUncle]

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@Aussie wrote:

In your reply you stated "Enter your sales information, do not make an entry for depreciation (no zeros)"

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If I had to guess, that is a typo.

However, while her description will report the correct gain/loss, if there is a gain and the rental property qualifies for the QBI deduction, using that method to report the sale will incorrectly NOT affect QBI.

TurboTax is not set up for reporting the sale of an asset that has varied in business percentage.  And it quite horribly doesn't notify you of its incapability of doing that and that it gives incorrect results if you try.

As a side note, in the event the vehicle was originally personal-only use and then later converted to partial business use (for the rentals), the manual calculation can get much more complex than what Diane mentioned.

[Aussie]

The punch line is the sale of the vehicle results in a loss based on the cost basis of vehicle x business use percentage, the sales price x bus use % and total depreciation claimed based on miles each year x the depreciation portion of SMR.  I am hoping the author replies to clarify what she meant.

I did not claim any auto expenses or SMR until a year or so after purchasing the car.

Please tell me your source from the tax code that provides the information regarding this subject. I am usually successful in researching the tax code but this one stumps me, I can't find the specifics anywhere.

[AmeliesUncle]

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@Aussie wrote:

The punch line is the sale of the vehicle results in a loss based on the cost basis of vehicle x business use percentage.

I did not claim any auto expenses or SMR until a year or so after purchasing the car.

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Because it was originally personal use and later converted to business use, and because that first calculation results in a loss, then you need to do a second calculation.  You do it again using the Fair Market Value when it was converted to business use (not original cost), and use the business percentage based on the total miles starting from when it was converted to business use (not the business percentage over lifetime ownership).

[Aussie]

@AmeliesUncle 

Yes I did that.

Source of IRS code?

[AmyC]

See About Publication 544, Sales and Other Dispositions of Assets to learn what to do and then it is reported on About Form 4797, Sales of Business Property.  

You only want to use:

• % of business basis (FMV when converted), 
• depreciation - actual or amount from standard mileage rate used each year
• % business sales price.