Calculating basis for Gain/Loss on a car that was totaled.

[mmkastor]

I started a business on March 1, 2022.  I used a 2014 Dodge Challenger for both business and personal use and tracked the miles. I then totaled the Challenger on 9/21/22. 

Total miles driven in the 2014 Challenger from 3/1 to 9/21 was 8750 miles. Business miles driven:  3908 (44.66%).

Geico paid out $20,120.59 for the totaled 2014 Challenger. 

I calculated the value of the Challenger on 3/1/22 to be $21,405 ($20120.59 + depreciation).

I am having a very hard time with the basis for gain/loss on the vehicle.

In addition, I purchased a new Dodge Challenger in October 2022 - does this figure anywhere? Please help! 

[DianeW777]

The cost basis for the Challenger that was totaled is as follows: 

1. Purchase price x business uses percentage of the vehicle.  The business use percentage takes into account all miles for the life of the vehicle divided by business miles used for the life of the vehicle.
2. Depreciation for 2022, is calculated based on the standard mileage rate of .26 per business mile ($1,016).  Depreciation using actual cost is not allowed for an asset that is placed in service and removed from service in the same year.
3. Selling price for the business use percentage is calculated the same as step 1 above.

The new Dodge Challenger is added as a new asset under Vehicles and has no connection with the old one. Figure out the business and personal miles on the vehicle during 2022 to arrive at your business costs.  If you do not choose to use the standard mileage rate in this first year you will never be allowed to use it for this vehicle during your ownership.  If you do choose the standard mileage rate the first year, you can switch between actual expenses and the standard mileage rate as you choose each year.

The depreciation method in the future will require the alternative depreciation system (ADS), if you do choose the standard mileage rate the first year.  That simply means a 5 year recovery using the straight line method versus the general depreciation system (GDS) which is an accelerated method.

• IRS Publication 946

[Mike9241]

form 4684 is used. part A for the personal portion part B for the business portion

per instructions : If property is used partly in a trade or
business and partly for personal purposes,
such as a personal home with a rental unit,
figure the personal part in Section A and the
business part in Section B.

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so take what you paid and split it 44.66% business and the rest personal. also split the insurance portion this way. if insurance proceeds on the personal portion exceed the personal cost you have taxable income.  if a loss it's not deductible.

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do the same for the business portion but for that cost do not reduce it for any depreciation.  the rule for business depreciation is that none is allowed on business property put in and taken out of service in the same year. gain takable/loss deductible.

[mmkastor]

Thank you for answering. What about the 'basis for gain/loss' and 'basis for AMT gain/loss'? I do not understand what that is or how to compute that or do I leave it blank since I used the vehicle just for personal in Jan/Feb of 2022 because my business did not start until 3/1/22?