Business Vehicle Trade-in

[HoulihanDan]

Questions on a business vehicle used part-time for a business over eight years.  The percentage of business use over the eight years is 48.24%.  The vehicle was traded-in during 2021.  Original purchase price was $12500, and trade-in value was $4000.  I find confusing info on Turbotax on how to handle this entry for 2021,  from the vehicle is fully depreciated after five years of using the Standard Mileage Deduction and to then enter $0 for the sale price, the other extreme is any amount that it was sold for would be a gain.  

When calculating the business mileage for each year of use, multiplied by the mileage depreciation amounts found on the IRS table for each year,  the total amount is higher than the original purchase price.  Turbotax advises not to enter an amount higher than the purchase price.  Please advise on how to enter this info in Turbotax, and also the CA state return asks for the Gain/Loss Basis, which completely evades me.  Thanks!

[ColeenD3]

Your sales price is not zero, it is $4,000. You said the vehicle was fully depreciated after 5 years? If you took MACRS, your basis is zero and you had a $4,000 gain.

If you didn't take actual expenses, but standard mileage, you would need to recapture the standard mileage, based on the amounts in this LINK.

[HoulihanDan]

I came up with the $0 sale price from someone asking a similar question and a resulting TurboTax response. 

The link that you provided doesn't seem to function,  but the way that I  understand it, I am to calculate the Depreciation Equivalent since I did use the standard mileage deduction.  When I calculate that for the 8 years of business use, it's greater that the purchase price.   So I just enter the purchase price since TurboTax says the entry cannot be higher than the purchase price?

Using the percentage of business mileage, 48.24% of total annual mileage during the life of the vehicle where the deduction was taken, that same percentage of the total sale price is the gain?  $4000 x .4824

Lastly how is a Gain/Loss Basis calculated?

Thanks for the response!

[RobertB4444]

$12500 times .4824 is 6030.  That is what you paid for the car which is the basis.  You depreciated it down to zero.  SO your basis is zero after depreciation

The trade in that you received for the car was $4000.  4000 times .4824 is $1930.  That's what you owe tax on.

[AmeliesUncle]

The vehicle section can not report the sale of a vehicle whose business percentage varied from year to year.

In the vehicle section, say you converted it to personal use.  The report the sale in the "Sale of Business Property" section, using your manually calculated numbers.

[johnhancock33]

Coleen : self employed.  Bought car new to me 2020 for $20,577. Traded it in 1/22.  Total depreciation taken was $13,920.  95% business use. Trade in allowance was $16,000 +/-.  $2,000 more than I owed.  TT 2022 wants sale price.  Use the $16,000, or just the net amount pot $2,000?  Do I get any credit anywhere for "paying off" the loan balance?  Could it be used as part of the cost of acquiring the new car?  Thanks, hope the question makes sense. 

[Critter-3]

Technically you sold the old car for $16K to the dealer so that is your sales price.  The extra money is part of the "boot" you had to pay so the new vehicle's basis is the 16 + 2 = 18K   Paying off the loan is immaterial to this calculation. 

[Mike9241]

something seems to be missing. 

new car                                          20577

trade in allowance                      -16000 

payoff - loan old car                     14000

 you should have had to come up with cash and/or a new loan of 20577-16000+14000 or 18577

unless there was a discount you got that you didn't mention

[johnhancock33]

Bought car in 2018 for 20577.  Traded it 1/2022 for  truck.  Loan balance on the trade in was around 14000.  Dealer gave me 16000, 2 grand above what I owed.  Then financed new truck purchase.  Looks like I have to use the 16000 as sales price?  Was hoping could just use the net of 2k.  Thanks very much for response, appreciate it.