Gain/Loss Basis and Depreciation on a Work Vehicle That was Traded In

[MMF74]

I traded in a vehicle that I used for work 30% of the time. I've worked my way through the questions and I'm on the part about "Let's get the info on your gain and loss basis". I didn't make any major improvements to the vehicle. How am I determining the basis? I do have the mileage I used for work for each of the last three years I had the vehicle. I bought the car for $80k and they gave me $55k on the trade-in (negative equity was applied to the new loan). My follow-up question is then how do I determine the depreciation equivalent on the next page? Does the same number go in both boxes (meaning the same number in both spots on the depreciation page and then whatever the gain/loss basis gets that number twice)?

[JamesG1]

Compute the depreciation equivalent for 2020 and 2021 by using the amounts and directions outlined under Learn more at the screen Calculate depreciation equivalent.

For instance, for 2020, use $.27 X 1,000 business miles equals $270.  For 2021, use $.26 X 1,000 business miles equals $260.  Enter $270 plus $260 equals $530 in both boxes.  

Learn more states:  "Use these amounts for both your regular tax depreciation and your AMT depreciation. However, the total amount you enter cannot exceed the depreciable basis of the vehicle."

If you used the actual expense method in any year, use the depreciation computed for that year instead of the computations above.

You stated "then whatever the gain/loss basis gets that number twice?"

Prior depreciation and AMT Prior depreciation are different computations of depreciation, the first under the regular tax method, the second under the Alternate Minimum Tax (AMT) method.

The AMT is an "alternative" tax which TurboTax calculates behind-the-scenes, along with your regular federal tax. If the alternate method results in a higher tax than the regular method, you may pay the difference on top of your regular tax.  See here.

@MMF74 

[MMF74]

Thank you! I have the mileage for each year so I can calculate that amount. Is this number also based on the percentage of time the vehicle was used for work? Regarding the AMT, if we didn't use it in 2022, then I leave the AMT depreciation blank? Also, going back to the previous screen, how am I determining the gain/loss basis?

[JamesG1]

I have the mileage for each year so I can calculate that amount. Is this number also based on the percentage of time the vehicle was used for work?

The calculation is cents X business miles so the  percentage of business miles / total vehicle miles is not a part of the calculation.

Regarding the AMT, if we didn't use it in 2022, then I leave the AMT depreciation blank? 

Directions in Learn more state to enter the computation in both boxes.  AMT calculations will take place in the background and you will likely not be affected by the calculations.  Alternate minimum tax is reported on Schedule 2 Additional Taxes Part I line 1.

Also, going back to the previous screen, how am I determining the gain/loss basis?

Click on gain or loss basis at the screen Let's get the info on your gain or loss basis for the explanation of the basis calculation.

The calculation is original purchase price plus cost of major improvements less depreciation allowed or allowable.

@MMF74 

[ka5tep]

Going off of MMF74's question regarding the calculation of the basis for determining the capital gain/loss, I purchased my vehicle in 2015.  I started my business 9/1/2020, at which time I started using my vehicle for the business.  The  vehicle usage was only a total of 26% of the time until I traded it in 3/2022.  For calculating the basis, I am looking at the Sept 2020 JD Power & Associates NADA guide.  Which column do I use for the value:  Rough Trade-in, Average Trade-in, Clean Trade-in, Clean Loan, or Clean Retail?  (It has been 20 years since I prepared taxes professionally...I cannot remember.)  I seriously doubt it would be the MSRP column, but...

Thank you very much!!!

M Clark

[RobertB4444]

There isn't a set column for you to use from the guide.  You will have to pick the one that you feel most closely represents the condition of the car in 2020.  Just be prepared to defend your choice if anyone were to ask.

@ka5tep