Sold vehicle used for 16 years with our rental properties and with personal use. Do I need to recapture depreciation on this year's taxes?

[JulieH1 · Accepted solution]

Yes.

If you previously deducted the standard mileage see the chart attached.  

If you used vehicle expenses in your rental business, you need to recapture as well. Enter the sale/disposal of your old business vehicle as a sale, not a trade-in, for the amount you received. Be sure to recapture your allowed depreciation using the Depreciation Equivalent chart provided.

[betamax]

I have always taken the standard mileage deduction. Calculating the depreciation equivalent for a vehicle sold in 2019 that was used the past 15 years for rental properties is not clear.  I guess that I look back 15 years for the mileage on the three rentals and multiply by the yearly factor from the chart and repeat for the other two properties.  How do I account for the large number of miles for that vehicle for past years on the two rental properties I sold in 2018?  I don't see any way to do that without just adding it somehow to the current properties.

[Carl]

Lets see if we can make this easier and simpler for you.

If you've been using that vehicle for business use for 16 years - even if less than 100% business use, it's fair to say that by now you've depreciated that vehicle 100% hands down, making it's cost basis ZERO.

Generally, a vehicle is fully depreciated in 5 years. So if the vehicle was say, 20% business use all 5 years then you depreciated "at least" 20% of the cost basis to zero during that 5 years. But if you keep using that vehicle beyond 5 years, the way the law is written you continue to take depreciation after that, if you take the "per mile" deduction each and every year.

So based on that, I would say just report the vehicle as "stopped using this vehicle in 2019" and on the special handling required screen click YES to indicate it was removed for personal use.

Then on the personal side of your taxes report the sale of the vehicle with a cost basis of zero. That makes 100% of your sale price taxable and there's no possible way it can be claimed that you did not recapture all depreciation taken.

Besides, I doubt you sold a 16 year old vehicle for more than $1500 anyway, and that amount is not going to make that big of an impact on your tax liability.

[chrisatunc]

Thank you, Carl! I went through this on my taxes this year and was convinced that turbotax's script wasn't clear or accounting for the situation correctly. I too had a vehicle that I used for 6 years on multiple properties but also (mostly) used for personal use. One silver lining of COVID times is that I was able to get 50% of what I paid for it in 2014. I thought, 'turbotax knows I sold for half of what I originally paid for it (they asked for vehicle cost), I'm selling it for way less now, HOW OR WHY would they tax the business portion as a capital *gain*?!?!? Your response helped immensely.

[Carl]

@chrisatunc it's possible that you may not have taken all depreciation on your vehicle to get it's cost basis to zero. You're kind of "on the line" in my mind, because I don't know your percentage of business use. Having used it across multiple properties seems like a reporting nightmare to me.

Now as you know, the "per-mile" deduction changes every single year. A percentage of that deductiion is attributed to vehicle depreciation, so that depreciation amount per mile changes every year too. Assuming you tracked your miles and percentage of business use each year, you can use the chart at https://bradfordtaxinstitute.com/free_resources/irs-mileage-rates.xml.aspx to see just how much depreciation you took on the vehicle "per mile" each year, as far back at 2002.  The "per mile depreciation" chart it about 3 pages down. Now I would just copy that chart to this post. But that's on a copyright protected website. Therefore I only reference it.

[chrisatunc]

Hi Carl, good news is that I did use those same per mile depreciation rates to come up with the cumulative amount that I had depreciated the vehicle. As for percent of business use - that can be defined as 'number of miles used for business divided by mileage when I sold the vehicle', yes? Moving to the calculations: Paid 38,890 brand new in 2014. Sold it for 19,500. Drove 89,000 miles total, and only 5,050 for business. Based on the mix of years when driven the depreciation total was $1,223.81. As for portion of sale attributed to business, I presumed I could say it was used 5.67% for business (5050 miles business / 89000 total miles driven) . However, I don't recall being able to establish the adjusted basis you refer to on any of the screens or else it wasn't clear to me. I remember one screen which asked the vehicle cost (which I definitely entered as 38,890) and another screen which asked if I had acquired the vehicle by trading listed property (and if no then leave the basis fields on that screen blank). It obviously asked what I sold the vehicle for. At the end of the day, it said I had a capital gain of 1,107 (which is sale price 19500 * 0.567 and appears to assume a '0' basis rather than a much larger basis - greater than 19500 - that would have made it a loss). That just seemed strange. The amount of capital gain tax for me on 1,107 wasn't worth the extra time or turbotax package upgrade to sort through it but I did want to dig just a little more to see if I was completely off base. I hate feeling like I have to screenshot every single question of the turbotax experience (I didn't do screenshots this year) in order to be able to troubleshoot the weird situations like this!