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?

[clueless001]

The business use percentage varied but averaged 35%. The car was worth 22,000 when put into business use, I took a total  of 6,000 business depreciation over the years, and sold it for 15,000

[HelenC12]

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

[clueless001]

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.

[GeorgeM777]

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

[clueless001]

Yup, I’m aware. Standard

[AmyC]

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)?

[AmeliesUncle]

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).

[Mike9241]

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 

[clueless001]

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.

[AmeliesUncle]

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)?

[AmeliesUncle]

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.

[clueless001]

35%

[AmeliesUncle]

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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.

[clueless001]

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%

[clueless001]

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.