Let’s make sure you understand the basics. If you sold the vehicle for more than its adjusted cost basis, that is a taxable gain. For personal property, the cost basis is generally what you originally paid, and since you almost never sell used cars for more than what you paid, you almost never have a taxable event when you sell a used car.
however, when you use a car for business, you take a deduction for depreciation — wear and tear — caused by business use. You either take this deduction separately, or it is included in the standard mileage rate. It’s generally between $.20 and $.25 per mile of the standard mileage rate is considered to be for depreciation. (The table linked by the expert will have the exact amount.) You have to reduce the cost basis of the vehicle by the amount of depreciation that you claimed as a result of using it in business. If the selling price was still less than the adjusted basis, you don’t have a taxable event, but if the selling price was more than the adjusted basis, the difference is taxable.
Let’s assume you paid $20,000 for the car, and you used it for business 10,000 miles per year on average. That’s 150,000 miles, which comes out to be around $30,000 of depreciation. You got well more out of the car than you put into it and your adjusted basis is zero, so any sales proceeds will be taxable income.
You should attempt to figure out the exact amount using your business and tax records. Although it is generally recommended to keep tax paperwork for three years, you really need to keep paperwork related to depreciation of assets for as long as you own the assets. If you can’t determine your exact mileage over 15 years, make your best guess and document in writing how you made that guess. Then figure out the amount of depreciation and whether or not you have a taxable gain. Remember that if you are audited, the IRS does not have to give you any basis adjustment that you can’t prove. If you claim low mileage so that the car is not depreciated and the selling price is not taxable, but the auditor disagrees, the auditor will win unless you have valid proof.
