I have a vehicle that was disposed of (traded in) during 2019. It was originally purchase in 2014 and converted to partial business use in 2015. Business use was minimal (less than 5%) and only used standard mileage. You still have to calculate whether there was a business gain/loss, correct?
If so, would you use the standard mileage depreciation table per IRS Pub 463 and calculate depreciation based on business miles to deduct from basis? And then use average business use to calculate portion of sale/basis attributable to the business versus personal?
Yes to everything that you said.
But because it was converted to business use, you need to run the gain/loss numbers two ways.
- Run the calculations you said using the purchase price and total miles since purchase. If the result is a gain, use this result. If it is loss, go to #2.
- Run the calculation you said using the Fair Market Value when it was converted, and total miles since it was converted. If the result is a loss, use this result. If it is a gain, go to #3.
- There is neither a gain or loss. Just enter the disposition date, and leave the sales price BLANK.
However, with less than 5% business usage, any gain or loss will likely be very minimal. You may consider just going directly to #3. 🙂
Thank you for the response. I never considered this, but I’ve had a hard time finding a definitive approach. When you say total miles, are you referring to just business miles or everything?
This is what I had considered doing (simplified example):
Basis at time of conversion - $20,000
Trade-in Value - $10,000
Average business use since conversion – 5%
Business portion of trade-in price - $500
Adjusted basis = Business Cost Basis – Depreciation = ($20,000 x 5%) - $225 = $775
Loss = $225