Question #1 - TurboTax wants to handle the vehicle sale as a partial 'Sale of Business Property' which would yield a loss and income deduction (Form 4797). Sounds nice, but is that correct
Yes. Mileage includes depreciation, so you do need to enter that amount as "prior depreciation" when you report the sale.
The amount of depreciation per mile fluctuates yearly, so you need to compute that by year and add for the total.
Depreciation in Standard Rate by year
If this still results in a loss, the business will get a prorated amount, I think you said 10%, of that loss.
Question #2 - TurboTax also wants to take that ale of Business Property loss, prorated across each property based on percentage of use in 2021, and reduce my QBI income by that amount yielding a smaller QBI reduction (Schedule E Worksheet). Seems strange to me as the sale of the vehicle didn't reduce my rental property income. Is this correct?
Yes.
The depreciation increased your income for years (although slightly), so now it's payback time.
Depreciated assets are referred to as Sec. 1231 property.
"Sec. 1231 transactions. If a taxpayer has a Sec. 1231 net loss at the individual level, it is treated as ordinary loss and included in QBI. Sec. 1231 gain is treated as capital gain and is excluded from QBI (Regs. Sec. 1.199A-3(b)(2)). But, if a taxpayer has a Sec. 1231 loss in a year and then has a Sec. 1231 gain sometime in the next five years, that gain is treated as ordinary, not capital. The final regulations do not comment on the treatment of Sec. 1231 gain recognized as ordinary income. Based on the preamble of the final regulations, Sec. 1231(c) rules should be applied for deferring a taxpayer's QBI, and, therefore, any Sec. 1231 ordinary loss that reduced QBI in a prior year should be included in QBI in the recapture year."
Tax Adviser
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
