I got a warning that my "Excess basis is too large" for my business vehicle (Schedule C). I entered the cost of the vehicle minus the trade-in. What am I doing wrong?

The "Excess basis is too large" warning typically means that the depreciation allowed, including all prior years' depreciation, is larger than the business basis of the vehicle. Here are a few things you might want to check:

 

1. Depreciation Calculation: Ensure that the prior year's depreciation is correct and less than the business basis of the vehicle. If your vehicle originally cost $20,000 and is used 50% for business, the business basis is $10,000. Compare this to the depreciation allowed/allowable.
2. Section 179 Depreciation: Pay particular attention to the Section 179 Depreciation screen. If there is an entry here, it could be entered as the prior depreciation causing an error. This is only if you have claimed actual expenses and not mileage.
3. Prior Depreciation: Revisit your current return’s asset entries and ensure that the prior year’s depreciation is correct. You can see the prior depreciation on the Prior Depreciation screen in the program. This is also if you have been claiming actual expenses and not mileage.
4. Mileage Deduction: If you have been claiming mileage deductions, ensure that the depreciation included in the mileage rate does not exceed the business basis of the vehicle.
5. Asset Entries: Go back through the vehicle section and double-check that it is showing the correct business use percentage for the current year.

If you have been claiming mileage, make sure you have been calculating depreciation equivalent and not full depreciation each year. Depreciation equivalents amount are on page 35 of IRS Publication 463. 

 

Turbo Tax Article Regarding Excessive Basis