Schedule C, Sole Proprietor, Gain or Loss of Car Totaled, used Partly for Business

[1234512]

Filing Schedule C as a sole proprietor. Been using the standard mileage deduction since 2006 on a car used for business and personal (business use only about 5% a year, but varied each year). Car was totaled in August 2019. How do I calculate gain/loss and report all this in TurboTax? Here are some other numbers: Purchase price ($24,000); claimed depreciation 2006-2019 ($2,400) (calculated by pulling old tax returns and multiplying business miles times the depreciation per mile from each year!), insurance paid $7300. 

And, can I use actual expenses instead of the standard mileage deduction for this year through the date of the accident?

[ReginaM]

Yes, you can claim actual expenses this year for your vehicle, kee in mind though you can not claim both Standard Mileage Rate and Actual Expenses for the use of a vehicle, you can claim either Standard Mileage Rate OR Actual Expenses in the same year.  If you claimed both of these as indicated above you might want to consider filing amended returns for the years you claimed both.

The IRS clarifies this in Publication 463  stating that, "If you use the standard mileage rate for a year, you can’t deduct your actual car expenses for that year. You can’t deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees."

When you have insurance and you total your vehicle, the insurance company will keep the vehicle and give you or a check for the pre-accident value of the vehicle.

If the check is made out  and you are the owner of the vehicle, you need to divide the insurance proceeds between business and personal use based on mileage.

1. Regardless of how you deduct your vehicle (actual expense method or IRS mileage rates), you have adjusted basis, and thus gain or loss.
2. On the business part, you have either a taxable gain or a deductible loss.
3. On the personal part, you pay taxes on any gain, but you may not deduct any personal loss.

[1234512]

Oh yes, I know it's one or the other; we've always used ONLY the standard mileage deduction, from year 1 in service! Just making sure it was OK to switch to actual expenses for 2019 INSTEAD of the standard deduction!

But how is gain/loss calculated and how does this get entered into TurboTax? Using the Car and Truck Expenses Worksheet linked to Sch C, I checked : "I stopped using this vehicle in 2019" and entered the date of the accident. Answered the relevant use questions...then skip ahead to fields asking for the Sales Price (business portion), which I think is where I should enter the business percentage of the amount insurance paid, but business percentage changed each year, do I use 2019 percentage? Next fields, TurboTax asks for Basis for Gain/Loss (enter 100% of basis) -- what figure should I use here and on the next line, AMT basis?

[ColeenD3]

Yes, your insurance reimbursement is the amount to use for sales price. However, the sale price page tells you to multiply the amount times business use percent. (5%)

On the page that asks: "Let's get the info on your gain or loss basis" the Learn More blue box tells you the basis is the purchase price minus depreciation, so it is $21,600 not including any depreciation you might have taken in 2019 using the actual method. 

[angelicatv]

What do you do if you took the proceeds from the insurance and purchased a new car?

[DianeW777]

You report it as a sale on your tax return. The IRS requires the insurance proceeds be listed as sale proceeds.  If another car was purchased with the proceeds, it's not important unless you will also use the new car in your business. You will need the purchase price.

A car that was previously used in business require some figures you need to determine before you can add or enter the sale.

1. If you purchased your car, find the amount you paid for this business car after any trade-in allowance, if applicable.
2. What was the percentage of business use and personal use (if applicable)? Only the business portion of sales price and cost will be used.
   • This is determined by total business miles divided by the total miles driven each year.
3. Did you depreciate the cost of the car or did you use standard mileage rate?
   • If you depreciated the car in TurboTax then it should still be there and you will mark that it was sold.  TurboTax will walk you through the sale.
   • If you used the standard mileage rate you must follow the chart attached to calculate the amount of the depreciation portion (part of the standard mileage rate is the depreciation expense).

Now that you have the necessary figures, you will be prepared to handle the sale.  In the vehicle section/expense under the business be sure to answer all the questions starting with the Let's get some info about this vehicle. 

• IRS Publication 463 (page 24)

[angelicatv]

Thank you. The proceeds from the car was 100% used toward a new car in which I use partially for business. How do I handle that?

[angelicatv]

I saw that the publication states: Casualty or theft. For a casualty or theft, a gain results when you receive insurance or other reimbursement that is more than your adjusted basis in your car. If you then spend all of the proceeds to acquire replacement property (a new car or repairs to the old car) within a specified period of time, you don’t recognize any gain. Your basis in the replacement property is its cost minus any gain that isn’t recognized. See Pub. 547 for more information. Trade-in. When you trade in an old car for a new one, the transaction is considered a like-kind exchange. Generally, no gain or loss is recognized. (For exceptions, see chapter 1 of Pub. 544.) In a trade-in situation, your basis in the new property is generally your adjusted basis in the old property plus any additional amount you pay. (See Unadjusted basis, earlier.)

How do I show that I spent the proceeds on a new car (in which i used the standard milage rate)? Will I show no gain? 

[DianeW777]

Like-kind exchanges no longer apply to anything except real property.  In other words a car is not considered real property.  (IRS Publication 544, page 11)

The basis of the old car and the insurance proceeds will determine whether you have a gain or a loss on the old car.  This will not affect the basis of the new car since there was no trade-in for the old car.  Follow the instructions above to determine and report gain or loss on the business portion only of your vehicle.  

If you are able to itemize deductions, the personal portion of the vehicle may be able to be used as a casualty on your Schedule A.  A casualty loss must be greater than 10% of your adjusted gross income.  If the loss is greater than 10% of your AGI, then you can add that difference to the rest of your itemized deductions to see if it is more than your standard deduction.

As pointed out by @Mike9241 the personal loss must have been associated with a federally declared disaster area or a Ponzi Scheme under the Tax Cuts and Jobs Act (TCJA) from 2018-2015. If not, there is no personal loss to consider.

{Edited: 01/23/2023 | 9:40PM}

[Mike9241]

@DianeW777 personal casualty losses are no longer deductible except in two instances. those attributable to a federally declared disaster and Ponzi schemes.  2018-2025

[DianeW777]

For information about reportable casualty losses for personal use property the following link may be helpful as well.

• What if I have property that was lost or damaged?

@angelicatv