Two work truck sales

[Kea]

I know it's late in the season when I find vehicle trade-ins easier than regular sales.

Client started using his wife's 3 year-old SUV in his business last year. I asked them for FMV at the time of conversion and they guessed $8500. This year they sold it for $9000. Kelly Blue Book shows a decrease of about $1500 from one year to the next, so I plan to change the FMV to $10,500. But should I really be using the original purchase price? I don't have any historical info for the SUV to gauge the overall business use %. If I don't use any of the older personal use info, I get a fairly substantial short-term gain. Am I doing that right, or should I be starting with the personal years?

He started using the SUV when his 10-year-old truck started having more trouble. Over the 7 years I've been doing their taxes, the depreciation component of the std mileage is higher than the purchase price. When the truck finally died, they gave it away. They aren't going to like the idea of have a $10K gain on a dead truck because they the over-depreciated over the years. And that doesn't include the mileage they took prior to my working on their returns. I doubt they have this info. How do y'all handle this? Max out the depreciation at the purchase price or try to get historical info (uh - huh) and go with the big gain? It seems like in my old HRB days, they had us just ignore that part and not show any sale or any real change of business vehicle. Just track std miles and that was it. Unfortunately I don't think I can get away with that.

Why couldn't he have traded-in the truck (and SUV) and let me just defer the gains? OK, that would just be that much worse when he eventually sells.

Thanks!

[indyscott]

The basis for depreciation for the SUV personal vehicle put into business use, s/b the FMV at the date it's placed in service.

I'm confused about the truck. It's abandoned, so you do a disposition of it. How could there be a 10K gain on a truck they've used 10 yrs. (?), and is now fully depreciated?

[Kea]

The basis for depreciation for the SUV personal vehicle put into business use, s/b the FMV at the date it's placed in service.

I'm confused about the truck. It's abandoned, so you do a disposition of it. How could there be a 10K gain on a truck they've used 10 yrs. (?), and is now fully depreciated?

OK, I did the SUV correctly.

The truck was using standard miles the whole time. A portion of that rate is depreciation. So by using the truck about 25K miles each year and the depreciation component being 12 - 19 cents per mile over the years, it depreciated more than the actual cost.

Should I have been tracking that through the years and adjusting the std mile rate when the basis zeroed out?

And I agree with your sentiment. I having a hard time justifying a gain (especially a large one) on an abandoned truck. I know the client will be ticked.

Thanks!

[indyscott]

One of the reasons for using the Std Mileage rate is to be able to get the benefit of actual maint & repair costs being higher as the vehicle ages, as opposed to depreciation, which is higher when the vehicle is newer. That's why if you want to use the Stnd mileage rate, you have to start it in the first year the vehicle is placed in service. You can't take the higher actual depreciation when it's new, and switch to std when it's older.

Sooo.. what you're computing as "over depreciated" is a misconception.

[Kea]

One of the reasons for using the Std Mileage rate is to be able to get the benefit of actual maint & repair costs being higher as the vehicle ages, as opposed to depreciation, which is higher when the vehicle is newer. That's why if you want to use the Stnd mileage rate, you have to start it in the first year the vehicle is placed in service. You can't take the higher actual depreciation when it's new, and switch to std when it's older.

Sooo.. what you're computing as "over depreciated" is a misconception.

It's been standard miles the whole time.

Does that mean that even though a portion of the standard mileage rate is for depreciation, I can "ignore" that when the adjusted basis goes to zero and consider the whole rate as for cost of upkeep and gas, insurance, etc.?

I'm not sure that's right, but it sure would save on capital gain on sale?

[Kea]

I do see a certain logic in not depreciating the vehicle basis below $0.

Is is legal to show the sale as sold for $0 with $17K basis and $17K depreciation? Or do I have to report the large gain?

Thanks.