Traded in vehicle numbers don't seem right

[Mike2360]

I traded in a 3 year old truck with an original cost basis of $68636 which was used approximately 99% of the time for business.  Business percent of trade value was $47530.  Depreciation amount total was $48151.  Did math (basis minus depreciation claimed) which came to $20485 and used that figure for "basis for gain".  TT now tells me my gain was $47530. and further on the section which has "sale of business property" has me making $79359.  The truck was the only property I sold.  In addition, I still owed over $41000 on the truck I traded in. What am I doing wrong?

[DianeW777]

You may not be doing anything wrong. Let's do the sale a different way.

Summary: Your numbers

If you had the truck on depreciation when placed in service and the business use was an average of 99%, then the cost basis for depreciation would be $67,950 ($68,636 x .99) before any expense for depreciation.  The depreciation you used on the tax return according to you is $48,151.  Be sure to add the current year amount to the prior year totals.

$19,799 is the business portion of the cost basis at the time of the trade ($67,950 - 48,151)

$27,731 is the gain on the trade ($47,530 - 19,799)

1. When you go through the vehicle section until you reach the screen 'Do any of these apply to the truck?' 
2. Select 'Your percentage of business use of the vehicle varied over the years.'
3. On the next screen select 'Yes' you converted this asset to nonbusiness use'
4. Finish the vehicle section.
5. Now you are ready to enter the sale of the vehicle under Sale of Business Property (not the business activities).

6. To record the sale of a business asset (vehicle) outside of the business/asset entry.

7. Sign into your TurboTax account:
   • Under Business Income and Expenses >Less Common Business Situations > Sale of Business Property Start or Revisit > Enter your sale (TurboTax CD/Download)
   • Under Wages and Income > Other Business Situations > Sale of Business Property (TurboTax Online)
8. See images below (TurboTax CD/Download will look similar

[Mike2360]

Thank you for the reply.  I did forget to add in the 2021 depreciation amount.  That got my gain up to $31,000.  The fact that I still owed on the truck at the time it was traded in doesn't matter?  The trade only resulted in a $6,000 credit towards the new one.  This change appears to have made it so trading in a vehicle is no longer of any tax benefit at all.  Keeping the old one would've saved me a fortune in taxes.

[RobertB4444]

Depreciation gives you a tax deduction for a vehicle whether or not you have paid it off.  With accelerated depreciation you can take a deduction for more than 50% of the amount that the vehicle sold for in the first year - before you even make a payment!

But there's a catch to that depreciation.  You got a deduction on your taxes for the value of that vehicle with the idea that on the day that you got rid of the vehicle it would be worthless. 

That's what depreciation is - it's the decrease in the value of your property due to the wear and tear of business use.  But in this case you told the IRS that the value of the vehicle had gone down by 48 grand.  So the truck should have only been worth 19K.  But it wasn't.  It was worth 47 grand. 

So the IRS says that they gave you too much credit over the years and they wanted their tax credits back.  

[Mike2360]

Thanks for the explanation.

I understand the concept.  Being unaware of the change makes it a rather unpleasant surprise come tax time though.  All I've ever done is answer the questions and let the program do the figuring.  With this change, TT should probably figure depreciation on vehicles differently.  At least make people aware that now they may owe money when they trade in a vehicle.  

The method suggested by DianeW777 did help in getting what appears to be the correct figure for the gain.  For some reason the TT questions about the trade resulted in the gain being listed as a much higher figure.  Hopefully this helps others who run in to the same problem.

[ColeenD3]

TurboTax doesn't set the rules for calculating depreciation. The IRS does.

TurboTax provides software. It's always a good idea to know the tax law and how it affects how you are handling your business.

[PatriciaV]

@Mike2360

It would be helpful to have a TurboTax ".tax2021" file that is experiencing (or has experienced) this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions: 

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

Thank you for your assistance.