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Anne
Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Regarding Form 4797, How do I report a sale on a car used for

Customer Question

Regarding Form 4797, How do I report a sale on a car used for multiple use? Standard mileage deduction was taken on Sch C and Form 2106 for several years. Should it appear as two entries on Part I since business % use varied?
Submitted: 4 years ago.
Category: Tax
Expert:  Anne replied 4 years ago.
HICustomerbr />
Thank you for using just answer. What year did you first place the car in service?
Customer: replied 4 years ago.

Hi Anne,

 

For my business (2002) and for side job (2004).

 

Expert:  Anne replied 4 years ago.
Hi

Thank you for that additional information. A portion of the standard mileage allowance is considered to be depreciation, and IRS has tables that give you that depreciation adjustment. Please see below:

Depreciation adjustment when you used the standard mileage rate.

So for tax year 2002 for example, you claimed business miles x the applicable business standard mileage rate (for tax year 2002, that amount was 36.5 cents/business mile)

You will follow the same formula in order to make the depreciation adjustment, meaning you will now multiply the same number of business miles you used in 2002 by 15 cents/mile which is considered your depreciation for tax year 2002.

The fact that the business % changed doesn't enter into this equation (which is why tax pros such as myself are always happier when people use the standard mileage for the cars they use in business since figuring the depreciation is relatively simple) You simply use the # XXXXX business miles for each year you claimed a deduction, multiply the # XXXXX business miles you drove by the applicable amount in the IRS chart for depreciation, add them up, and that's the depreciation you report on Form 4797.

I hope this helps.
Customer: replied 4 years ago.

Hi Anne,

 

It does, thank you. But what about figuring the gross sales price and basis? Isn't the gross sales price based on % of business use (e.g. using 27% business use on Sch C and 28% on Form 2106)? And the basis determined by the lessor of FMV on the date placed in service or adjusted basis on the date placed converted asset in service? In both situations, the "date placed in service" and "% business use" differs. So would the result be two line entries of the car on Form 4797 (i.e., one resulting from Sch C depreciation and one from Form 2106 depreciation)?

 

-Thanks

Expert:  Anne replied 4 years ago.
Good question, and I should have anticipated this and included it in my initial answer.

You will add the business % together for each year you used the car for business, and multiply the selling price by that total. That is considered the sales price for the business portion on Form 4797, and again, this keeps this as one transaction on the Form 4797.

So, for example, if you sold the car for $12,000 and you used it for business purposes for 27% one year and 28% another, your selling cost for Form 4797 would be $6600. ($12000 x .27 = $3240 + $12000 x .28 = $3360. $3240 + $3360 = $6600)

The portion left over is considered personal and is not reported on your tax return.

I hope this helps.

Edited by Anne on 10/18/2009 at 1:12 AM EST
Customer: replied 4 years ago.

Thanks. What about the basis? The car was used for business in 2002-2008 and later used for side job in 2004-2008. Should I use the basis from 2002?

Expert:  Anne replied 4 years ago.
Yes, since that was the first year it was placed in service.
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1638
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 4 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thank you.
Expert:  Anne replied 4 years ago.
You're most welcome. Thank you for using justanswer.

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