Sale of vehicles used in rental properties

[Benjamine]

Own two rental properties and use multiple vehicles for each.  Each year I apportion travel (standard expense deduction)  to each property using both vehicles.  Sold one and traded in the other. 

Do I enter the sales under each property or just under one property?  If just one, how do I dispose of the vehicles on the other property?  The sold vehicle was used on one property since 2008, the trade-in was placed in service in 2018. 

Thanks! 

[PatriciaV]

You will need to allocate each sale between the businesses where each vehicle was used.

Use any reasonable method to allocate. Total vehicle mileage over the life of the vehicle is probably the most common choice.

For example:

1. Business 1: 1500 total miles reported
2. Business 2: 500 total miles
3. Sum of miles = 2000 (1500 + 500)
4. Total Sales proceeds = $4000
   1. Business 1 = $4000 x (1500/2000) = $3000 sales proceeds
   2. Business 2 = $4000 x (500/2000) = $1000 sales proceeds

When you report this sale in the Vehicle Expense section of your Business, you can indicate that you 'stopped using the vehicle' for business, and enter details about the Sale or Trade In.

Click this link for more detailed info on How to Enter a Business Vehicle Trade In.

[Benjamine]

Thanks for the quick reply, but I'm still confused after reviewing your example!  FYI - I am working on the Rental Income Vehicle screen (not the business section if that is applicable).

Total mileage when sold was 55,786.

Property A:  4,504 business miles driven.   Placed in service 2008     FMV $7,500  

Property B:  4,075 business miles driven.   Placed in service 2010      FMV $6,000

The sales screen (after indicating no longer in service) instructs me to calculate business portion.  

Property A: 7.30%  (55,786 - 4,504 = 51,282).

If this is correct, would I then multiply the sales price by 7.30% to get the business portion of the sales price for Property A?

I greatly appreciate your help and sorry to be such a dunce!  Math is not my forte!

[PatriciaV · Accepted solution]

Yes, if the vehicles were not used exclusively for your Rental property, then you will need to apply the business use percentage to the sales price for each vehicle for each property.

[Benjamine]

Thanks so very, very much!  I really appreciate the help!

[Benjamine]

Need more help, please!   I followed the interviews and believe I've done something very wrong!  My total prior depreciation taken on the truck (since 2008 on one property and 2010 on the other) is $1,996.  TT has calculated that the Ordinary Income Recapture is $437 for the first property and $393 on the 2nd?????

The truck was 27 years old when sold - all I can figure out is that by subtracting the business miles from the ending mileage does not account for the fact that when placed in service (Property A) the vehicle had 40,335 miles of personal use already. That calculation would result in 15,451 miles driven since 2008.  I drove

the vehicle 4,750 business miles for Property A and 4,504 for property B.  Respectively, that would give me a business use of 29.15% on Property A rather than the 7.3% business use based on ending mileage not adjusted for the 40,335 personal use prior to placed in service. 

Hopefully, you will be able to clarify what I'm doing wrong here!  Very much appreciate any guidance!  

If I subject my

[DianeW777]

Yes.  Here is the formula based on your actual mileage numbers.  Keep in mind that you did have that much personal use of the vehicle before converting it to business use. The sales price and cost basis need to be prorated with the following percentages, or the number you arrive at based on this example. The depreciation will be actual numbers based on your deductions.

Total miles driven all years = 55,786 (40,335 + 15,451) // Personal use percentage = 83.42 %

Business miles Property A = 4,750 // Business use percentage = 8.515%  (4,750/55,786)

Business miles Property B = 4,504 // Business use percentage = 8.074%  (4,504/55,786)

The percentages in total equal 100% of the vehicle. If there is an overall gain, you will have taxable gain. You will use the actual cost of the vehicle to determine the amount of gain if any.

Please update here if you would like further assistance.

[Benjamine]

Thank you.  Yes, need additional help!  You state "You will use the actual cost of the vehicle to determine the amount of gain if any."

The interview states "since you didn't claim depreciation for this vehicle ... (I'd selected varied business use earlier)  it asks that I enter the Vehicle Total Cost when placed in service - which would be $7,500 FMV.  The interview does not ask for initial purchase price.  However, the Schedule E  Car and Truck Expense Worksheet, Part IV (Vehicle Depreciation Information) indicates Lines 33 A and B should be completed if the vehicle was converted from personal use.  33a is total cost when acquired 33b FMV when placed in service and 33c Vehicle basis contains my $7,500 entry. 

Should I complete the information directly in the form or may I have made a wrong choice earlier?  Also Line 37 - Prior Depreciation was calculated by me using the formula and I entered $1,045.00,  Line 38 - Depreciation Deduction is 0 - is that correct? 

Oh my, once I get this correct, we traded in a second vehicle also used in business :(  

Thanks in advance!

[DianeW777 · Accepted solution]

We can make sense of this.  First, yes you should use the worksheet and change line 33a to the actual cost of the vehicle when purchased. 

• Side note: The correct result can also be accomplished by entering the difference as sales expense when asked for that amount.  This would eliminate direct entry change on the worksheet.

Depreciation deduction for the current year would be zero unless the vehicle was used for business in 2021. See the following information.

Next, if you used the standard mileage rate for the business miles on the vehicle then depreciation does exist.  The chart attached below will allow you to determine the depreciation portion of the standard mileage rate for all business miles.  Once calculated, you can enter the prior (and current amount if the vehicle was used in 2021) total depreciation claimed on the vehicle. The formula you used was unclear.

[Benjamine]

Yes, that is the chart that I used!  Hopefully I have it all straightened out now.  Next comes the trade-in vehicle used in both businesses  - ugh - hopefully it will go smoother. 

I do not know if you are able to answer this question, but I still own two vehicles that are available for use in business.  After this fiasco, would it be best to remove one from service and convert to personal use now (it has not been used in 2022 as of yet) on my 2021 taxes or wait until I file my 2022 return?  I want to simplify by only using one vehicle for business in the future.   

Many thanks again for the help! 

[AliciaP1 · Accepted solution]

I would advise waiting until your 2022 return.  Changing it in 2021 could lead to more complexity, but since it has not been used in 2022 there will be no mixed use.

[Benjamine]

I'm now working on the second vehicle and am unsure that I have computed this correctly.  I'd really appreciate a quick check as TT is showing I have a $4,092 loss.  I have just calculated the figures for one property and since there is a similar use on the 2nd property, I want to be sure I am correct since it may result in a $10,000 loss when I complete the 2nd??????

Vehicle purchased used in 2018 for $32,500 and immediately placed in service - mileage at purchase 45,136.  To determine biz basis I subtracted 1,436 biz miles (Prop A) from mileage at sale 58,791 resulting in a 2.4% business use.  I then used $32,500 minus $780 (2.4% biz use) = $31,720.  I then subtracted prior depreciation taken of $482.35 resulting in a net tax basis of $31,237.65.   (There is no place for entry of this number).

I traded in the vehicle for $25,000.  Multiplying that value times 2.4% results in a $600 business sales price.

Line 35 shows $922 depreciation amount. 

I very much appreciate the help! 

[ZoltanB45]

You have been taking the mileage deduction until sale. There is an option for "disposed of vehicle" when you go under the business section.  If you have been allocating the vehicle expenses under a property, then the disposal will happen under the same property.

[Benjamine]

Your "answer" didn't answer my question at all. 

I am asking if I am using the correct calculations since the result is a $4,000. loss!  FYI - this is a rental property so I am following the interview in TT under that heading, not the business section. 

[Benjamine]

DianeW777 - would it be possible for you to review my latest question?  I did get an "answer" from someone but it did not address my question.  I'm concerned that I may have miscalculated or entered incorrect information. 

Thanks so much!