Sale of car used for business

[jmta]

I put a car into service in 2004 and sold it in 2021. The numbers Turbo tax is using make no sense to me.

I have calculated from my records that the business use over the years was 20.8%. The full cost basis for the car is $21,759 and full sale price is $3,400. So it seems to me that Form 4797, line 20 and line 21 should be 20.8% of those numbers.

I used the standard mileage rate most years and calculated the depreciation portion taken based on the table provided by Turbo Tax at a total depreciation of $ 3057. I don't know what to do for depreciation for the five years that used actual costs for the the car expense. Please advise?

Subject to any additional depreciation that may be needed for those 5 years, I think Form 4797 should look like this:

Line 20 (Sales Price):     $707

Line 21 (Cost)               $4526  

Line 22 (Depreciation): $ 3057

line  24 (Gain)                  $0  ($762 loss)

Turbo Tax says I have a $702 gain and I have no idea how it comes up with that. What is correct?

[Cynthiad66]

It is possible to have a Gain on the Sale/Disposition of a Business Vehicle, depending on how long it was used and % of Business Use. 

Once you have determined the current cost basis of the vehicle (business portion of value when placed in service, less depreciation taken) and the Sales Price (if sold or traded in), TurboTax will calculate a Gain/Loss for you.

Click this link for more info on Disposition of a Business Vehicle. 

[jmta]

Thanks for your prompt reply. I have been looking at the Car and Truck Worksheet and it seems to me that TT is showing a gain that is equal to the sales price (adjusted for 20.8% business use as entered) and it doesn't change when I change when I adjust the cost basis. Help me understand that.

Looking at the March 2020 example in the link you provided, the basic formula for calculating a Gain or Loss is: Cost Basis - depreciation- sale = Loss. In my case that is: $4526 - $3057 - $707 = $762 (Loss!). For my own sanity and Turbo Tax aside, can someone confirm that I have a loss and not a gain?

If I do have a loss, either Turbo Tax is wrong or there is something else we are missing.

[AmyC]

Review your example:

Cost minus depreciation = $1469 business portion basis.

Sold for $707

This results in $762 difference which should be a loss. Agreed except your vehicle should be completely depreciated with no basis after all these years.

Reality and sanity check:

Car should be business basis zero. The business portion of your car should be completely depreciated,  A car is completely depreciated after 6 years, leaving only the personal portion of your car.  Personal basis $17,233. Personal would not have a gain since sold for less than paid.

It should be cost - depreciation =  zero basis

Sold $707

Gain $707

The math formula is: Sales price minus basis = gain or loss.

Again, struggling with math since 20.8% of $707  or $762 will not get you to $702. There is something missing in the  information for your return.

Without seeing your return to know why $5 of gain is missing, I don't have any idea. But at least the known reality and Turbo Tax are only $5 apart. Selling business property after its lifespan, will create a gain.

[jmta]

Thank you very much for your reply!

I looked through the worksheet and found that the $5 difference was caused by a $5 entry for expense of sale. An error as far as I can tell - not sure how it got there.

Regarding your comment "your vehicle should be completely depreciated", I calculated the depreciation number by looking up the annual miles over the years and used the per mile depreciation for each year provided in the table in Turbo Tax. As I mentioned initially, the standard rate was used in all but 5 years and I have no idea what depreciation may have been taken in those other years when actual expenses were used. The car wasn't listed on any of the depreciation schedules in my return and my CPA is no longer available to assist me. I assumed all was ok because it was a personal vehicle partially used for business.

If the sale is a taxable gain, so be it. It seems like Turbo Tax was using the business portion of the sale price as a gain and I was having trouble believing that.