Car Depreciation Question

[prbymichelle]

I freely admit this is blowing my mind...I don't remember it being this difficult 5 years ago when I got this car!

I'm using TurboTax Home and Business 2020 if that makes a difference.

OK, so my Mom gifted a car (Car A) to me in 2016 (on 1/1 so that made taxes a lot easier).   Total gift as in I did not have a purchase price - I paid for all of the registration fees, taxes, etc., as I am in a different state.  There was nothing owed on the car.  

In June 2021, I decided to buy a new car (Car B).   I had to actually get a car loan (haven't had one since before I started my business, so I didn't have to worry about any of that).   I had no need to keep Car A, so I gifted it to my Dad.   Well, you can't "regift" a gift in my state, so technically I "sold" it to him for $1.00 (that I never received....hmmmmmmmmmm might need to bring that up on my birthday🤔).

Now TurboTax is asking me all sorts of questions about Vehicle Cost and purchase price and sale price and valuation of depreciation over the course of the time I had Car A, and I'm totally lost.   I "bought" it for $0.00.   I "sold" it for $1.00.

Both Car A and Car B are a mix of personal and business use, as I have a direct sales business (think something like Mary Kay) so I might use the car to get my groceries or meet with friends for drinks, but I also use it to drive to parties at my hostess' homes.   

None of the examples that I'm getting from the Help section are really hitting it for me (I may just be having trouble finding what I need).   Also, I fell down this rabbit hole which was informative when it came to calculations, but also confusing as the two experts seemed to differ: https://ttlc.intuit.com/community/business-taxes/discussion/question-about-sale-of-business-property...

Any help would be appreciated as to how I should proceed with Car A and Car B on my 2020 Schedule C

[Carl]

For Car A - Work through the business vehicle section and select the option for "I stopped using this asset/vehicle in 2020" and continue working it through. When presented the "Specialy Handling Required?" screen, read that screen so you'll understand why I'm telling you to click the YES button. Then click the YES button. Finish working it through, and that does it. You will "NOT" be asked for a sales price of the vehicle, but you WILL be asked for a "date of disposition" that you will need to enter. Typically, this would be the last day the vehicle was used in the business.

[prbymichelle]

Thank you for the information.

I will tell you I answered the questions as best as I could and never got to "Specialty Handling Required" which means I'm missing something somewhere.  

I literally only used this for like 125 business miles last year.   And somehow adding in the car that I purchased is telling the system that I now have a $7,000+ loss in my business.   That turned my audit risk to "high" very quickly!

I might just need to take a break to come back to this.   I swear it didn't used to be this complicated!!!!!!   🙂

Thank you, though, for getting back with me, I appreciate it!

[AmeliesUncle]

You Gifted the vehicle to your dad.  A Gift is essentially converting it to personal use, so you need to tell the program you converted it to personal use.  That should solve your problems (although your dad may need to know some information about your business usage whenever HE sells the vehicle.

[prbymichelle]

Thank you, @AmeliesUncle and @Carl.  I'm not that worried about my dad ever selling this car, as it is currently the "dog" car -- meaning whenever they have to take the dogs somewhere, that is what they use to ensure dog hair doesn't get into my Mother's car, and one of the three dogs is too old to climb into my Father's truck, but can get into this one OK, so it is easy for them to transport the dogs.  As the dogs currently outrank their children, they will probably not ever get rid of this car.   😁   

I have a related question if you don't mind.  May be simple but it isn't to me.   

I gifted Car A to my Dad, then purchased Car B.  When I'm doing turbo tax it asks if I had any other vehicle available for personal use in 2020.  Technically, yes, if you look at overall 2020, but NOT when I owned either car.    Meaning I had no access to Car B during the time I owned Car A, and vice versa.

I'm OK answering "No" to the did I have any other cars available during 2020...that is the correct answer, right?

[AmeliesUncle]

I think it means did you have other vehicles for personal use WHILE you had that vehicle.  But whatever you answer it won't change the results.

[Carl]

Basically, the answer only matters (and I don't know how it matters) if you are claiming 100% business use of the vehicle. If you claim 100% business use, yet don't have any other vehicle for your personal use, then you "might" be hard pressed if audited, to prove you didn't use that vehicle for other than business use.

Typically for a rental property owner, business use of a vehicle will be less than 100%. So your answer wouldn't really matter. Overall in my experience, I've found that claiming vehicle use for a rental property (I have three) is not worth the effort. The tax "savings" are so minuscule in the long run, I just don't find it worth my time to deal with all the paperwork.

[prbymichelle]

@AmeliesUncle  and  @Carl  Thank you both.  Your answers helped me reduce me so much!!!!!

I really can’t tell you all how much I appreciate it so very much! It was the first time I was really out of my comfort zone with TurboTax, and this really helped me to get a better idea of what I need to do for next year!

Thank you so much!

[hatingTTrightnow]

WHY on earth would the dad need to know anything about his son's business use when HE sells the car? The son's business has nothing whatsoever to do with him (unless I missed that he is somehow involved in the son's business).

[KrisD15]

If you gift a business asset, the person you make the gift to is responsible for any depreciation recapture due on the asset. 

So if a dad is gifted a car from his son, and the son took depreciation on this car when he used it for business use, when the dad sell the car, he might need to recapture depreciation that the son took on the car. 

The son could have sold that car to his dad, then the son would have claimed the depreciation recapture at that time, (and the son could then have gifted the dad the amount the dad paid for the car).