Vehicle depreciation and salvage

[Keithjwaz]

Hi,

Hope everyone is doing well and thanks in advance for any helpful info that can be sent my way.

We have a vehicle that was purchased and used for a business (100%).

The vehicle was purchased and put into service in 2019. The purchase price to put the vehicle in service was $14,200. The prior depreciation for the vehicle (up to 2023) has been $10,413. That's the value that Turbo Tax computes based on the past depreciation of the vehicle. 

In calendar year 2023 for which I am now using TT to do our yearly taxes, the vehicle was in a serious accident and we received an amount of $9,990 to salvage the vehicle. As of the end of 2023, the vehicle was no longer used for the business.

As I am using TT to compute our 2023 taxes, I used the standard form (and questions) provided with TT for depreciation and the software computes a current year depreciation value of $1,262 for the vehicle (I answered the question that the vehicle is no longer in service and the "end date" is 10/01/2023.

So my question is, the depreciation for the vehicle totals to:

$10,412 (prior years)

  $1,262 (calculated for 2023 by TT)

$11,674

The original cost for the vehicle (to put it into service) was $14,200. What happens with the balance, $2,526?

Is the "final year" depreciation being calculated correctly?

Keith

[Mike9241]

not sure how you have just $10K in depreciation through 2022 but what happened is that the insurance company paid you $9990 for the vehicle and took ownership. From an income tax perspective that's a sale to the insurance company on 10/1/2023 for that amount which needs to be entered in TurboTax. 

what will happen is that you will have a gain on sale of 9990 - 2526 that will be treated as section 1245 (form 4797) depreciation recapture. 

you do not indicate it was taken out of service. that will mess things up in Turbotax.

[Keithjwaz]

Hi Maike,

Thanks much for your response. The depreciation for the vehicle has been the following:

2019: $2,840

2020: $2,524

2021: $2,524

2022: $2,524

Total: $10,412

The depreciation was originally set up by an accountant for as 5 year period with the amount of $2,854 per year--$2,854 x 5 = $14,200.  ( I am just realizing that now as I am reviewing all of the records.) The accounting was moved over to TT in 2020 and the value taken for depreciation per year changed for some reason I don't understand.

We did assume that we should book the $9990 as income for 2023 for the salvage amount received. 

From your comment here, should I do the following:

a. Not indicate in TT that is was taken out of service for 2023. I'm assuming then that TT would calculate a value of $2,524 for 2023. If so, this would bring the total to $12,936.

b. Gain sale to report would then be as follows:

$9,990 - $1,264  = $8,726

[$1,264 calculated from $14,200 - $12,936

Is this correct?

Thanks much,

Keith

[RobertB4444]

It'll work out to a little less as taxable income.  You won't indicate that it was taken out of service.  You'll enter it as a sale of the vehicle with a sale date of 10/1/23.  So you won't end up taking the full year's depreciation.  

It's not taken out of service because it was sold just as if it was perfectly functional.  The total loss makes no difference to the taxes.  

@Keithjwaz