What's a vehicle’s basis? ‌

A vehicle’s basis is its calculated value for tax purposes. The basis is the starting point that is used to calculate depreciation while you own the vehicle and to determine any gain or loss when you sell, trade, or otherwise dispose of it. You may also need to determine your vehicle’s basis when you convert a personal vehicle to business use or switch from the standard mileage rate to the actual expense method. 

Your original cost basis is the amount you spent to acquire the vehicle and place it into service. Your adjusted basis starts with the original cost basis and is then increased or decreased by certain adjustments. For example, depreciation taken reduces your basis, while the cost of major improvements (though uncommon) may increase it. Other events, such as casualty losses, can also affect your adjusted basis. 

Generally, TurboTax calculates the tax basis for you based on the information you enter. However, there are situations where you may need to understand which basis applies and if you need to provide additional information to calculate that basis.

Keep in mind that only the business portion of a vehicle is relevant for tax purposes. If you use a vehicle for both business and personal purposes, TurboTax will only factor in your business use percentage when calculating deductions.

Starting depreciation

When you first purchase and use a vehicle for business, TurboTax will ask you for the basis of the vehicle so it can calculate depreciation. Generally, this amount will be what you paid for the vehicle, as well as certain costs related to the purchase.

Converting a personal vehicle to business or rental use

If you owned the vehicle for personal purposes and later began using it for business, your basis will change. In this situation, your basis would be the lower of your adjusted cost basis or the vehicle’s fair market value on the date it was converted to business or rental use.

Switching from the standard mileage rate to actual expenses

If you previously used the standard mileage rate method and later want to switch to the actual expense method, you must reduce the basis by the depreciation already included in the mileage deduction. The remaining basis is then used to calculate future depreciation under the actual expense method. 

The list below shows the depreciation rate set by the IRS by tax year.

Depreciation per year is calculated by multiplying the rate per tax year by the number of business miles that year. The total amount calculated based on this formula for all years will equal your accumulated depreciation using the standard mileage rate.

Selling or trading in the vehicle

When you dispose of the vehicle, the adjusted basis is used to determine whether you have a gain or a loss. Generally, if the amount you receive is higher than your adjusted basis, you have a taxable gain. If you receive less than the adjusted basis, you may have a loss. TurboTax will ask you to enter the business portion of the sale proceeds for the calculation, which would be your total sales price multiplied by the business use percentage. 

For detailed steps on entering the sale of a vehicle used for a business or rental property, see this related help article.