Car was used for business and sold it. How do I determine gain or loss. Adjusted basis (cost when placed in busines less depreciation) was less than sale price?

Below is the portion of the business standard mileage rate that is treated as depreciation:

• For tax year 2016, 24 cents per mile,
• For tax year 2017, 25 cents per mile,
• For tax year 2018, 25 cents per mile,
• For tax year 2019, 26 cents per mile,
• For tax year 2020, 27 cents per mile.
• For tax year 2021, 26 cents per mile,
• For tax year 2022, 26 cents per mile.

Here is an example of how to compute the gain or loss on the sale of a vehicle if you used the standard mileage rate:

• You purchased a car in 2010 and use the car for business purposes 10,000 miles per year in 2010, 2011, 2012, 2013 and 2014. You sell the car January 1, 2015. You've got to reduce your basis by $11,300 (10,000x.23 for 2010, 10,000x.22 and 2012 and 2013 and .22x10,000 for 2014). You might end up having to report a profit or loss.

Related information: IRS Notice 2022-03 Section 4. Basis Reduction Amount

I used both standard deduction and actual deduction method over the years and usage varied. I still calculated depreciation using the cents/mile rate x business miles for each year in years I used standard method and used the actual depreciation amount for years in which I used the actual cost method.

As a follow-up to @HelenC12, we assume you used the standard mileage rate for the first year of business use.  If you used the standard mileage rate for the first year of business use, you can switch to actual expenses and then back to standard mileage from year to year at your discretion.  However, if you elected to take actual expenses in the first year of business use, you cannot thereafter switch to standard mileage; you are obligated to continue using actual expenses.

Which method did you use for the first year of business use? 

@clueless001

Yup, I’m aware. Standard

Basis of the vehicle is  fmv when placed in service minus depreciation. So $22,000 -6000= $16,000 and sold for $15,000 creates a loss of $1,000. You may have had selling expenses to include, an ad, broker, etc.

In the program, mark that you sold the car, enter the date and amount.

See:

How do I edit or delete the sale of a business property I've already entered (Form 4797)?

Unadjusted Business Basis:  $22,000 x 35% = $7700

Minus Depreciation (Adjusted Business Basis): $7700-$6000 = $1700

Business Selling Price: $15,000 x 35% = $5250

That results in a business gain of $3550.

In the vehicle section, say you converted it to personal use, then report the sale in the "Sale of Business Property" section using the numbers above.

HOWEVER, before you do that, was this a personal-only use vehicle before you started using it for business?  If so, there is a second calculation that needs to be used before you do anything.   We would also need to know (1) your full original cost, and (2) the average business usage over the entire time you owned it (including the personal-only time).

assuming 35% average business use and $6K in depreciation  - both std mileage and actual deprecition

thus i would say 22000 X 65% or 14300 is personal and that 65% of 15000 or 9750 is personal 

the loss on sale of personal items is not deductible

business 22000 X 35% or 7700 reduced by 6000 in depreciation gives you a tax basis of 1700

sold for 15000 X 35% business use give you business proceeds of 5250 which results in a taxable gain of 3350 (5250-1700) which is all section 1245 recapture and taxed as ordinary income 

Thank you for the detailed response. Following up to your points:

The car was purchased new in 2013 for 33,000 and used only for only personal use till 2015.

Between 2015 and through 2022, it was used  partial business/personal use.  Average business usage for that period was 35 % (based on business milage out of total milage for that time period).  Business use milage started at 22,500 and final milage was 67,600. It was never converted back to  personal use only.

What was the average business percentage from when you bought it in 2013, to when you sold it (total business miles divided by total odometer miles)?

Okay, I guess with your odometer readings and assuming you started at 0 miles when you bought it, your average percentage is 23.35%.

So here is the second calculation:

Unadjusted Business Basis:  $32,000 x 23.35% = $7472

Minus Depreciation (Adjusted Business Basis): $7472-$6000 = $1472

Business Selling Price: $15,000 x 23.35% = $3503

That results in a business gain of $2031.

In your case, your taxable business gain is $2031.

35%

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@clueless001 wrote:

35%

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You need to clarify what that 35% means.

We need TWO things: (1) average business percentage from when it was first used for business until it was sold and (2) average business percentage from when you first bought the vehicle until it was sold.  

They will be two different percentages.

Thank you, hope this clarifies.

Average business percentage from when first used for business until it was sold was 35%

Average business percentage from when the car was first bought to when it was sold 23.7%

I see through this exchange that you have calculated two different gains on sale. I'm not following along with the distinction between the two. Are both calculation or is it an either or situation.  

Part of the problem is that when clicking on help in web based program, it says the program won't be able to make the calculation if the % of use varied each year.  I was trying to plug numbers to approximate something very close to the business gain of 3,550.

In your second calculation covering the life of the vehicle the gain was on ly 2,031. Which do I use. The car was not converted back to personal use when it was no longer used for business.

Thank you.

You use the second one (except change the calculation to use 23.7%).   My first calculation had incorrectly assumed that you had not used it for personal-only use before you started using it for business.  I should have asked first.

You are right, the program can't handle the sale when the business percentage varied.  That is why I had said to tell the vehicle section that you converted it to personal use, then enter the manually calculated amounts in the "Sale of Business Property" section.

Wow, very impressive! Not your first rodeo. Love the work around….I’ll give it a shot. I’m a little concerned that it’s going to generate several unnecessary forms that I may want to delete. This program isn’t what it used to be.

Sorry, I’m more confused. I thought the second example used 23.7%. Would you be kind enough ti restate it. Also, where is the sale of business asset section. I didn’t come to it. Is it in another area if the program? Also, can I just plug actual depreciation number through 2021. The program allows me to correct/change depreciation so I can adjust for actual cost method. Then I wouldn't have to say it was returned to personal use.

I used 23.35%, not 23.7%, so the numbers would be slightly different.

The "Sale of Business Property" section should be somewhere in the business area.

In the vehicle section, enter the current year information, but say you converted it to personal use on the date you sold it.  Then report it on the Sale of Business Property section.  It won't calculate correctly if you enter the sale in the vehicle section.

I decided to upgrade program and get live help.  They explained that in order to work with the program I should indicate that I converted the vehicle back to personal use (which I technically did) and that business usage percentage varied. Ater entering the depreciation and sale numbers it prompted me to do, it indicated no gain. The TurboTax agent assured me that it was correct. 

Following your advice, I used the Jump to Sale of Business Property link (agent said this wasn't necessary since I wasn't prompted to). The "recapture" box was checked but not sales of business property. I was told by agent there was no recapture.  Should I continue or let it go?

As an FYI, the various reviews did not prompt me to seek out sale of business property. The only way I got there was to enter that phrase in search box and click on the Jump To link.

None of these responses resolved the problem and Live Help wasn’t able to. The matter was elevated to a Lead and they supposedly were having a CPA with more experience get back to me

If I prepared my taxes using turbo tax for the duration of the vehicle purchase why doesn't TT do this work for me?

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@WaldoC wrote:

If I prepared my taxes using turbo tax for the duration of the vehicle purchase why doesn't TT do this work for me?

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 TurboTax is not set up to calculate the sale of a vehicle (or other asset) that has varied in business percentage from year to year.  So you can't report the sale in the vehicle section.  You either need to manually calculate things and enter it in the "Sale of Business Property" section, or go to a tax professional.

waiting for an answer