money lost from depreciation on automobile

[jfox1950]

Can I declare as an expense against my self-employment tax (1099 from Lyft) the money I lost when I had to trade in my previous car for a different one because of the accelerated value loss in the car due to mileage as a Lyft driver?

[RogerD1]

If you had been claiming vehicle expenses for your work as a Lyft driver all along, you have essentially been claiming the wear and tear and depreciation of the business use of your vehicle on your taxes already.

Assuming you had been claiming the vehicle expenses all along and you traded in your vehicle that had business use on it, you will need to enter in your return that you had sold (or traded in) your vehicle for a new one that you are using in your business.  The expenses you claimed - whether you used actual expenses or you used the standard mileage rate - will be used to determine the amount of depreciation that you will need to "reclaim" in the year you sold the vehicle.  The sale of the vehicle will then either have a gain or loss that will get reported on your tax return.

[jfox1950]

ok, so I can't use it to offset my self-employment tax (I'm trying to reduce that figure as I already have a huge NOL carry-forward pending)

[AmyC]

No. The sale of the car goes on 4797- sale of business asset. When you trade in/ sell your car, it is reported on your Sch C in the vehicle expense section to create gain or loss.

The only way to reduce self-employment tax is to find more deductions. The car is a good starting point.  You  claim the mileage, parking and other expenses.

Depreciating the new vehicle will also help but then you must continue that path. If you won't keep the car very long, actual expenses with depreciation may be the better path. Standard mileage is recommended when you plan to keep the car a long time.

It is frustrating to have a huge NOL carryforward and still owe SE tax on your income this year.

[Edited 2/25/2025 |8:27 am PST]

@jfox1950 

[jfox1950]

So I can use Sch C to offset se tax?

[AmyC]

Not an offset, a reduction. SE tax is self-employment tax - the Medicare and Social Security tax that w2 jobs take out when paid. Wherever you have self-employed income flowing in,  that creates the tax. I know you have the Lyft on Sch C. You may have a k-1 with income earned that requires the SE tax since none was withheld.

You should be making estimated tax payments throughout the year when you have a Sch C. At least one each quarter but you can make a payment each paycheck or however you want to work it out. You don't want to owe a lot of money and have penalties added on top.

References:

• Form 1040-ES, Estimated Tax for Individuals - make payments online throughout the year
• Tax Guide for the Self-Employed: Everything You Need to Know | The TurboTax Blog
  Small Business and Self-Employed Tax Center - complete IRS guide - my favorite
•  What is the self-employment tax? 

[Mike9241]

if you used the standard mileage method, TurboTax does not include depreciation in calculating gain/ loss. you have to calculate it using each year's mileage rate found in Pub 463 page 35

https://www.irs.gov/pub/irs-pdf/p463.pdf 

also if there was personal mileage, you can only take a loss on the business portion, which is figured by multiplying its cost by the business mileage all years divided by total mileage all years. the trade-in value would also be prorated the same way.

for the personal portion, if any, gain is taxable, while any loss is not deductible.  

[Mike9241]

The loss does not affect the SE tax; only taxable income and the QBI deduction are affected. the loss should flow to form 4797 (not schedule C). that loss does not flow to schedules C or SE. 

from schedule SE instructions page 4

Income and Losses Not Included in Net Earnings From Self-Employment

 8. Gain or loss from:
a. The sale or exchange of a capital asset;
b. The sale, exchange, involuntary conversion, or other disposition
of property unless the property is stock in trade or other property that
would be includible in inventory, or held primarily for sale to customers in
the ordinary course of the business; or

[newusernameagain]

I don't understand this comment by @Mike9241 

"for the personal portion, if any, gain is taxable, while any loss is not deductible.  "

Is this saying that a loss on schedule C will not reduce tax on the personal portion of the return? A loss on schedule C will only transfer as a Net 0 Gain on the 1040?

[Mike9241]

If the vehicle was 100% business use - all mileage was business mileage. There can be no personal gain or loss. So you can skip the rest. Personal use is all non-business mileage divided by total mileage. If there was personal use, the trade-in value (the selling price) is split between business and personal use. So if the personal portion of the proceeds less the personal portion of the cost (depreciation applies only to the business portion ) is a gain, its capital gain that is taxable. If a loss, most likely, it's not deductible.

If business use varied over the years, I don't think Turbptax can properly handle the sale on the vehicle worksheet.   

[newusernameagain]

Ah yes now I understand. If you never used a car for business and sell it for a loss, it's tuff luck and there is no tax deduction. If you sell it for a gain then you pay taxes. Kind of a double standard but that's the deal.  If the loss was purely due to business use, then you could take a loss on the 1040 return.

I just went thru this on the sale of a partial business use car. I had to dig up 19 years of returns.   I had used the standard mileage rate for all 19 years. I used a table the IRS provided for the specific depreciation allowance for each year (Cents per mile for depreciation) times the business miles each year. This is not the same table as the total mileage expense allowed for each year, it's just for the depreciation portion. Then I calculated overall business use percentage (total Business miles/Total miles) to figure the business cost basis and business sale price. Then I used the total depreciation over 19 years  to determine the  business adjusted cost basis.