Sale of Business use vehicle

[Tax Prep by Deb]

I have a new client whose former preparer had taken a 100% business use depreciation for her vehicle. In 2008 she sold the vehicle however the business use prior to selling it dropped to 24%. On the disposition tab of the asset worksheet, which business use percentage should I enter? Do I average it over the three years the vehicle was use? Or do I use the current business use figure of 24%?

Any thoughts would be appreciated, client is due in the office in about a half hour and this is all that I like from having this one completed!

Thanks,

Deb!

[kcjenkins]

Current use percentage.

[jainen]

>>Do I average it over the three years the vehicle was use?<<

Because she sold the car, it probably doesn't matter what you use for 2008 expense. Depreciation of listed property must be recalculated as SL from the beginning, with corresponding basis adjustment and recapture for the disposition.

Your software may have a cumbersome or even inaccurate procedure for this; since you only have the one car maybe it's easier to just run the numbers by hand and use overrides on the computer.

[joelgilb]

>>Do I average it over the three years the vehicle was use?<<

Because she sold the car, it probably doesn't matter what you use for 2008 expense. Depreciation of listed property must be recalculated as SL from the beginning, with corresponding basis adjustment and recapture for the disposition.

Your software may have a cumbersome or even inaccurate procedure for this; since you only have the one car maybe it's easier to just run the numbers by hand and use overrides on the computer.

Don't agree that it doesn't matter, although I do agree that it will have to be calculated manually, as it is unlikely the software can handle it.

Since the business loss changed a portion of any gain or loss will now have to be allocated between the business and personal.

[jainen]

>>a portion of any gain or loss will now have to be allocated between the business and personal<<

Yes, I agree that about 3/4 of the capital gain or loss must be treated as non-business because the vehicle was converted to that percentage of personal use before sale. The original question was about the depreciation expense, which must be recaptured anyway.

I may be wrong about making a difference--it depends on the sale price. A three year old vehicle has probably lost more than half it's value, so depreciation (as limited by luxury car rule) is not going to generate any gains.