Is Recapture for a Vehicle that I've reverted back to Personal use only after using it as Personal and Business use then later surrendering the vehicle through a Gov program?

[Pockyman1]

I had a Vehicle that I surrendered back in July through the CAP (Consumer Assistance Program Vehicle Retirement) through the Bureau of Automotive and Repair that offered $1500 or $1000 incentive. 

Would I need to fill out a 4255 Recapture of Investment Credit form for this purpose or is there a different form I need to fill out ?? 

[DianeW777]

It depends. It's unlikely you would need Form 4255, however if you used the vehicle in your self employment business, Schedule C, then you would report a sale of the vehicle.  Essentially you are recapturing the depreciation you used for the vehicle.  This would be actual depreciation you deducted or the standard mileage rate (SMR) portion that represents depreciation.

First, the correct action is that you have taken this vehicle out of service (sold, disposed of, etc). For tax purposes, when it was surrendered for money you have created a taxable event.  The information below will show what to select so that the vehicle will not come up again and this starts at the federal return. There is a difference in calculating the sale based on whether you used only the standard mileage rate or actual expenses or both. 

The way to report the sale or trade-in, (trade is not recognized by the IRS any longer for equipment or vehicles) is as follows. You have all the records so it should provide you the detail to move forward.

1. All business miles for all years and then total miles for all years - divide business miles by total miles to arrive at your overall business use percentage for the life of the vehicle. You will use this percentage times the selling price (trade-in value/CAP payment) to arrive at the business selling price. 
2. Calculate the standard mileage rate depreciation portion for the business miles each year if that is the method you used for the expenses each year.  If not use the depreciation you actually deducted each year your vehicle was used for your business. 
   •  A portion of the standard mileage rate is considered depreciation - see the chart below.
3. When go to the vehicle information under your business you can select 'Sold, disposed of, etc....' then do not indicate it was sold.  You must say 'Yes' it was converted to personal use.  This will eliminate any sales information in the vehicle itself.
4. Once you have completed the information in that section you will follow the steps below to enter your sale:
   1. Go to Other Business Situations
   2. Scroll to Sale of  Business Property
   3. On the next screen select Sales of business or rental property that you haven't already reported
   4. Use the information from step one and the depreciation from step 2 to complete your sale
5. If the personal portion of your vehicle is a loss there is nothing to report for that portion of the sale/trade.  

Once this is completed your sale will be recorded properly on your return. The image below is the correct selection for this sale.

                                    

                                                                   

@Pockyman1

[Edited: 04/06/2024 | 9:45 AM PST]