Traded a farm use vehicle which only used standard mileage expense

[kjheim09]

Subject: Traded a farm use vehicle in 2022 which only used standard mileage deduction

Purchased: 2018 @ $37,755 (was lower if consider the trade on a standard mileage deduction from before this)

Traded: 2022 @ $32,000

Checked:

• I stopped using this vehicle in 2022, added the date for that.
•  I owned this vehicle
• Yes, this vehicle was available for personal use
• No, I didn’t have another vehicle available for personal use
• Yes, I tracked my work miles for farm
• No, I didn’t track personal stuff files
• I’ll enter my beginning and ending reading for 2022
• Began 48,000
• Ended 50,000
• Miles 1/1 – 6/30 was 806
• 0-4 vehicles
• I’ll stick with standard mileage deduction
• Your percentage of business use varied over the years
• 806 in 2022 (TT says will add for me)
• 4,456 miles @ .26 in 2021
• 3,308 miles @ .27 in 2020
• 2,945 miles @ .26 in 2019
• 2,761 miles @ .25 in 2018
• $3,505.43 Prior depreciation and 26.922% average business use
• No, I didn’t convert to nonbusiness use
• Sale Price (prompts me to enter 10.08% of the $32,000 trade value)
• I noticed when trying things if I had not used for business in 2022 it would go from 10.08% to 0%
• This Sale Price seems a key driver in the end result
• If take 26.922% of $32,000 have $6,999.72 so entered since says take it by the business use percentage
• There were not expenses in the sale

• It looks like this value causes a $6,909 gain at the end but I only saved $7,965 over the 1st 4 years for standard milage expense, so that seems odd I would have a gain since I didn’t gain on the sale and only deducted $7,965 from using the vehicle over the years (fyi, I do not use Schedule C)
• Vehicle Cost (Used $37,755 since was price without the trade on this one in 2018)
• If I got this vehicle by trading enter Basis for gain/loss (enter 100% of basis) so used $37,755 (since like above traded in 2018 and didn't add anything significant or depreciate annual at any year)
• Enter the depreciated equivalent (Used the $3,505.43 from 2018-2021 above)
• My gain is $6,909 but I don’t understand this and why a gain when sold for less than purchased

The TT guidance is not clear and even the Publication 225 document from IRS site doesn't clarify. 

[AmeliesUncle]

TurboTax can not calculate the sale of a vehicle (or other asset) that has varied in business percentage from year to year.  So you can't report the sale in the vehicle section.  You either need to manually calculate things and enter it in the "Sale of Business Property" section, or go to a tax professional.

[KrisD15]

It's hard to say without seeing the numbers and how you entered them in the screens. 

I also am unclear what you mean when you say 

"It looks like this value causes a $6,909 gain at the end but I only saved $7,965 over the 1st 4 years for standard milage expense, so that seems odd I would have a gain since I didn’t gain on the sale and only deducted $7,965 from using the vehicle over the years"

However it APPEARS to me that the program, having suggested 10.08% business use is only using 10.08% of the purchase price as your basis. 

If you take 10% of your basis and 26% of the selling proceeds, you would show more gain than necessary. 

@kjheim09 

[kjheim09]

What form or worksheet is best for this?  I had form 4562 last year created by TT last year which shows:

- Do 24b & 24b?  Confirm I have documentation in writing.

- Says, Do section A columns a-c which is the property, date of service and % business usage

- Says, Do section B & C if applicable.  B is applicable for this and the new vehicle but not C.   This is where you list the mileage for vehicle, business and personal use.

None of what the form asks relates to Purchase, Sale, Trade-In.  It also specifies to not use other columns related to Sale, Purchase, Trade-in if used on Standard Mileage Rate.  Does that seem correct or is there another form/schedule to look at?  It seems odd that TT takes you into this after checking that you stopped using this vehicle in 2022.   I think I should not do that and just add the other vehicle and next year remove this vehicle I traded which would align with the 4562 instructions.  Is this a bug in TT?

[AmeliesUncle]

Business Cost Basis = $37,755 x 0.26922 = $10,164

Depreciation = $3717

Adjusted Business Basis = $10,164 minus $3717 = $6447

Business Sales Price = $32,000 x 0.26922 = $8615

Business Gain = $8615 minus $6447 = $2168

[kjheim09]

I have been reading on form 4562 and pub 946 but it is not very clear but form 4562 is cleared on Part V about you only do 25a,25b and columns (a) through (c) of Section A, and B or C if they applly.   The cost basis is in columns (d)-(h) which it clearly states you don't use.

I would also do Section B for each vehicle since it applies.

I am not seeing anything clearly showing you should do cost, basis or depreciation from these columns (d)-(h) and it says in Part V not do do.

II have read there is a depreciation in the standard mileage (previously calculated $3505 and said TT would calculate 2022 year) but form 4562 specifies don't do these columns which are related to purchase and sales of the vehicle.   What am I missing.  I looked into the option to pay for the business edition and it looks like you only get help if paying the $209 fee.  Is there another option since it seems part of the problem is TT is not asking the right questions and doing and people have comments that it doesn't work if not being the same business use % each year like my case.

[DianeW777 · Accepted solution]

The way to report the sale (trade is not really 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) to arrive at the business selling price. Use the same percentage to arrive at your business portion of the cost before depreciation. 
2. Calculate the standard mileage rate depreciation portion for the business miles each year (you have already done that).
   •    806 miles @ .26 in 2022 -    209.56  (TurboTax will calculate for you but will not be able to add all depreciation used for this vehicle for the sale entry)
   • 4,456 miles @ .26 in 2021 - 1,158.56
   • 3,308 miles @ .27 in 2020 -    893.16
   • 2,945 miles @ .26 in 2019 -    765.70
   • 2,761 miles @ .25 in 2018 -    690.25    $3,717.23  Total Depreciation used on this vehicle all years
3. When you enter the vehicle information in your farm be sure to select 'Sold, disposed of, etc....' then do not indicate it was sold.  You must say 'Yes' it was converted to personal use.  This will eliiminate any sales information in the vehicle it self.
4. Once you have completed the information in that section you will follow the steps below to enter your sale:
   1. Go to Less Common Business Situations
   2. Scroll to Sale of  Business Property
   3. On the next screen select Any Other Property Sale
   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.

This completes your entry for your farm vehicle.  Please update here if you have more questions and one of our Tax Experts will help.

@kjheim09