Tax Year Prior to 2020: We sold a car this year that we had previously deducted mileage. Do we have to recapture depreciation when only standard mileage deductions were used?

[suzyq210]

Use of car was mixed personal and business and percentage business use differs each year

[VictorW9]

Well, if you never entered the vehicle as an asset, then selling the car doesn't affect your return. However, if you had been taking depreciation deduction over the years, then the sale of the vehicle will be subject to depreciation recapture. Normally if you choose the standard mileage rate, you cannot deduct actual car operating expenses like gasoline, insurance, vehicle registration as well as depreciation.

[suzyq210]

We never took a depreciation deduction, only mileage.  But now on the sale turbo tax is asking me to entering purchase/selling price and to figure out previous years depreciation taken by multiplying the business miles used each year x a PORTION of the mileage rate- ie 2018 is miles x .26, 2017 x .25, etc.  TT then shows I have a gain on the sale and is adding to my tax.

[VictorW9]

That's the problem. TurboTax assumes you had taken depreciation in the past because you are telling the software that you are selling a business asset. You may have set up the vehicle incorrectly in the first place a business asset. Now TurboTax is asking for the depreciation you should have taken. Being that you were only taking standard mileage, the vehicle should not have been set up as an asset.

[AmeliesUncle]

The Standard Mileage Rate has depreciation built-in to it.  So YES, you need to account for the depreciation when you report the sale of your vehicle.

However, TurboTax is NOT set up for selling an item that varied in business percentage (such as a vehicle).  You will need to either MANUALLY calculate and enter the sale, or go to a tax professional.

[JulieS]

AmeliesUncle is correct, a portion of each mile is considered depreciation. Here are the amount for the last several years.

[Tanoposc]

But what if you used standard mileage but you didn't consider it a business vehicle? For example, I always use my vehicle less than 50% of the time for business. My car insurance company does not consider that it's a business vehicle in that instance.

Does that mean you still have to do the recapture upon sale?

Then the next question is, is it even worth taking the business mileage if you're going to take a hit when you sell it?

Thank you.

[AmeliesUncle]

You used it for business and claimed the business Standard Mileage Rate - it is a business vehicle.

Yes, you need to sell it as a business vehicle.

Yes, it is still worth claiming the deduction (and probably is required).

[Opus 17]

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@Tanoposc wrote:

But what if you used standard mileage but you didn't consider it a business vehicle? For example, I always use my vehicle less than 50% of the time for business. My car insurance company does not consider that it's a business vehicle in that instance.

Does that mean you still have to do the recapture upon sale?

Then the next question is, is it even worth taking the business mileage if you're going to take a hit when you sell it?

Thank you.

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If you claimed mileage, that is business use for tax purposes, no matter who else is asking.

The standard mileage rate include depreciation.  You must recapture it when you sell.

However, there may be nothing to recapture, especially with less than 50% use.  Suppose the car cost $20,000.  You claimed 5000 miles of business use over the years, that's about $1250 of depreciation.  (You need to determine the exact amount based on the mileage and depreciation value for each year that mileage was claimed.)  The depreciation reduces your cost basis from $20,000 to $18,750.  If you sell for less than your adjusted basis, there is no gain to report and nothing to recapture. 

Recapture only applies if you sell the car for more than the adjusted basis (your cost reduced by the depreciation).

And since the mileage rate also includes an allowance for fuel and maintenance, you should definitely take the mileage deduction if allowed, since only the depreciation portion needs to be recaptured. 

[AmeliesUncle]

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@Opus 17 wrote:

Suppose the car cost $20,000.  You claimed 5000 miles of business use over the years, that's about $1250 of depreciation.  (You need to determine the exact amount based on the mileage and depreciation value for each year that mileage was claimed.)  The depreciation reduces your cost basis from $20,000 to $18,750.  If you sell for less than your adjusted basis, there is no gain to report and nothing to recapture. 

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It is more complicated than that.  The sale is treated as two separate transactions, personal and business.  

For example, let's say the average business percentage over the time was 10%.  In that case, the $20,000 vehicle is treated as a $18,000 personal vehicle and a $2000 business vehicle.  So after factoring in $1250 of depreciation, the business Basis is $750.

If the vehicle was sold for $10,000, that would be treated as a sale price of $9000 for the personal portion of the vehicle, and a sale price of $1000 for the business portion of the vehicle.  So that would would result in a $250 taxable gain for the business portion of the vehicle.

[MauryM]

When I'm working through the worksheet and I go to report "vehicle cost" is that the cost of the Vehicle, or just the business portion of the vehicle.

In other words, if I bought a car for $8K and only used it 7% for business would my "vehicle cost" be $8000 or $560?

(The text of the question is as follows in the interview)

Since you didn't claim depreciation for this vehicle, we'll also need the vehicle's total coast.  The cost would normally be the purchase price (learn more)

If you do not immediately use the vehicle for business, the cost will generally be the Fair market value of the vehicle at the time you placed it into service.

Vehicle Total Cost:  ?

[MauryM]

But this doesn't line up with the questions Turbotax asks.  It asks for the FMV of the vehicle when put in service. Not the Fair market value mulitplied by biz use percentage.

I put a car in use in 2018 that had a FMV of $8,000.  I used it 10% of the time for business.

I took some standard mileage deductions over the years and recaptures $592 of those when selling.

I sold for $4000

Turbo tax is telling me I can claim a loss of -$624 on my taxes for sale of business property.

That can't be right.  Why would I get a deduction?

This program does the worst job of explaining and clarifying things!

[Cynthiad66]

Depreciation (including the portion of the Standard Mileage Rate) is recaptured if you sell the vehicle at a gain. The "useful life" is probably 3 years. The "Recovery Period" is 5 years. As I said before, depreciation (including the portion of the Standard Mileage Rate) is recaptured if you sell the vehicle at a gain.

Your vehicle cost is $8,000 and your business basis is $560

@MauryM

[AmeliesUncle]

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@MauryM wrote:

But this doesn't line up with the questions Turbotax asks.  It asks for the FMV of the vehicle when put in service. Not the Fair market value mulitplied by biz use percentage.

This program does the worst job of explaining and clarifying things!

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As I mentioned above, TurboTax is NOT set up to report the sale of an asset (such as a vehicle) that has varied in business percentage (in my opinion, it is severely negligent in that regard).  You either need to MANUALLY calculate things and enter the sale in the "Sale of Business Property" section, or go to a good tax professional.

[MauryM]

I'm okay with manually calculating things, I just need to know what to calculate.  Seems like I can figure out the basis of the business portion of my vehicle (bought and sold) and recapture the depreciation I've taken, but it's just the forms say "The value of the car when purchased"  Or the fair market value when put into use.

I suppose I could just put in the business portion of the car for those values, but that is NOT what Turbotax is asking for.   Very frustrating.

And thank you for your help on this.  I greatly appreciate you taking the time to answer my questions.