Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

Lev, I am an independent driving instructor, non 1099. I pay

Lev, I am an independent driving...
Lev,
I am an independent driving instructor, non 1099. I pay all expenses for the car I own and use for this job (and use it in another side business I have and deduct mileage). For the year up until November I had a 2000 Chevy Cavalier that I bought cash June of 2011. In November I bought on payments a 2008 Prius. I eventually sold the Cavalier at no profit. What is the procedure for disposing of the Cavalier onthe taxes? In one place in TurboTax it wants me to enter trade in information, but when I tell it that it wasnt a trade in it still wants to treat it as a trade in and eventually wants a depreciation amount (on the state tax in particular). How do I handle this?
Show More
Show Less
Ask Your Own Tax Question
Answered in 13 minutes by:
2/4/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
Verified

LEV :

Hi and welcome to Just Answer!
When you dispose the asset which was used for your business - the sale transaction should be reported on form 4797 - and you might need to recapture depreciation.
While you did not deduct specifically depreciation - it is included into your mileage rate deduction.
Because you deducted your transportation expenses based on the standard mileage rate in previous years - you need to adjust your basis on that car.
Specifically - see page 26 in this publication - http://www.irs.gov/pub/irs-pdf/p463.pdf
Disposition of a Car - in the middle column - depreciation rates per mile in previous years.
Use these rates to adjust your basis.

Customer:

OK, I see the publication, but how would I use that with TurboTax? TT askes the questions and I never saw a reference to the stuff in the publication. Also, I read in the pub a "like kind exchange." I didnt "trade it in" at the dealership, I sold it outright, but the newer car was a replacement for the older one, so that would be the same thing, wouldnt it? How do I do all this in Turbo Tax?

LEV :

"like kind exchange" doesn't relate to your situation.
However - the sale transaction should be reported and you might have a gain that should be recaptured.
The first step is to determine your basis - that is your original purchase price PLUS any improvements MINUS depreciation based on rates per mile in previous years.
Then - your gain = (sale price) - (adjusted basis).
If you have a gain - it must be recaptured up to the amount of depreciation.
The sale transaction is reported on form 4797 - that you need to locate in the Turbo Tax.

Customer:

Going to work now. Will be back later tonight. But please enter a reply my last entry and Ill pick it up from there tonight

LEV :

Please take your time. Let me know if you need any help with reporting.

Customer: Improvements? Does that mean doing maintenance and replacing defective parts? I spent over 1200 last year fixing things before finally getting rid of it.
LEV :

Repairs just keep your property in good working condition but do not add to the value of the property.
An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use.
Betterments. Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property.
Restoration. Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition.
Adaptation. Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property.

Ask Your Own Tax Question
Customer reply replied 4 years ago


OK. I bought it for 1000 in 2011, June 10th. I continually replaced work/defective parts. Replaced A/C/ compressor, alternator, brakes, etc. That wouldnt be a betterment I suppose. I sold it for 1200 in December 2012. Bought it with 175020 miles and sold it with 226935. 50449 of those were business miles, 23030 in 2011 and 27419 in 2012. What do I do with this information now?

See page 26 in this publication - http://www.irs.gov/pub/irs-pdf/p463.pdf
Disposition of a Car - in the middle column - depreciation rates per mile in previous years.

23030 business miles in 2011 * $.22 = $5067
27419 business miles in 2012 * $.23 =$6306
Your basis should be reduced by that amount - but not below zero.

So far - your basis after adjustment is zero.
If you report the sale transaction - there will be the gain = $1200 (sale price) - zero (adjusted basis) = $1200.
That amount will be added to your other taxable income.
Ask Your Own Tax Question
Customer reply replied 4 years ago

Why is the adjusted basis zero. I put a ton of miles on the car, doesnt it depreciate?

When you deduct travel expenses using standard mileage rate - part of it is attributable to depreciation.
23030 business miles in 2011 * $.22 = $5067
27419 business miles in 2012 * $.23 =$6306
These are amounts related to depreciation based on miles you deducted in 2011 and 2012.- and these amounts are subtracted fro your original basis.
So your adjusted basis will be zero.
Ask Your Own Tax Question
Customer reply replied 4 years ago


ok, so what do i do now in TurboTax? In business expense on "business vehicle expense", it has me edit for this car since I stopped using it in 2012. There is a place called "Trade in link" and TT thinks this was for a trade in, which it was not, i sold it outright. I was told by a previous Just Answer expert that I needed to enter stuff in teh trade in areas as I replaced this vehicle with another one. It has a place to edit on teh form 8824. How can I fix this ? Going to bed now will be back in the morning

If there was no trade in - you should not report the trade in...
There is a section in IRS publication 463 titled "Car trade-in" - but that is not related to your situation.

See - Depreciation adjustment when you used the standard mileage rate. If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the chart that follows. You must reduce your basis in your car (but not below zero) by the amount of this depreciation. If your basis is reduced to zero (but not below zero) through the use of the standard mileage rate, and you continue to use your car for business, no adjustment (reduction) to the standard mileage rate is necessary.

What you need to do under the tax law - to report the sale of your car - and determine the gain of $1200 - which would be taxable. Because your depreciation is more than that amount - the gain will be treated as depreciation recapture.

See also - Disposition of a Car If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of any gain that is due to depreciation (including any section 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service before Jan. 1, 2006), and special depreciation allowance) that you claimed on the car will be treated as ordinary income.

The sale transaction is reported on the form 4797.
So $1200 in your example - will be your ordinary income.
Ask Your Own Tax Question
Customer reply replied 4 years ago


What do I do with this info in Turbo Tax? Turbo tax keeps telling me this was associated with a trade in and theres so box to say if it was or was not. I DO see where on teh new vehicle if it was bought with a trade in and I say No it was not, but TurboTax keeps saying it is.

I am not sure what exactly you entered into Turbo Tax - and it would be hard for me to guess.

As you mentioned - someone advised you to enter "trade-In" into your tax preparation software - that would "trick" the system and would allow you not to report the sale transaction and pass validations.
However - that doesn't seem according to the tax law.

According to the tax law - because previously you deduct depreciation on your business asset - and sold that assert with the gain - that amount should be recaptured and added back to your income.

The tax preparation software should ask you - if you disposed the car during the tax year? - and if yes - the sale transaction should be reported on form 4797.
The fact of purchasing a new car (as long as there was no trade-in) has no relation to that reporting.
Ask Your Own Tax Question
Customer reply replied 4 years ago

I dont recall TT ever asking if I disposed of the car, it only asked if I BOUGHT it as part of a trade in. Never seemed to care if I disposed of it. Perhaps I should delete the car then reenter it ?

The question related to purchase came when you entered information about a new car.
However - the question regarding if you sold or otherwise disposed assets used in your business must come - most likely you overlooked it.
See - Detail of asset dispositions - http://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/Business-Tax-Preparation/INF12001.html
If your business sold any depreciable assets during the year, you'll need the following information to calculate any gain or loss on the sales for tax reporting purposes:
•Description of the asset
•Date of sale
•Sales price of the asset
•Any expenses of the sale
•Accumulated depreciation (if not calculated by the software)
Ask Your Own Tax Question
Customer reply replied 4 years ago

OK, but what do I do with whats entered already? TT thinks it was traded in and there was no place to say otherwise anyway. So what do I do with the info you sent me? Should I delete that car from my return and then reenter it?

You definitely may delete entry and start again. It would be hard for me to guess what exactly you entered.

Any the tax preparation software (including Turbo Tax) is trying to guide us through tax regulations by asking many questions.
In connection with your situation - there two possible places
- related to your old car - the question should be if you sold or otherwise disposed your old car.
- related to your new car - the question should be if it was leased or purchased and if there was a trade-in transaction.
So you need to look into two places.
Ask Your Own Tax Question
Customer reply replied 4 years ago

should I delete and reenter both cars? I deleted the sold car and am reentering it. A section askes if I own car, lease car, no it isnt mine. Since its sold do I say it isnt mine or say own it since I owned it during 2012 and used it for biz

If you are trying to re-enter information about your cars - I suggest do that for both cars and look very careful for all questions. Do not skip questions.
When you report the sold car - you will be asked the sale date and if it was used for business.
Ask Your Own Tax Question
Customer reply replied 4 years ago

TT is asking me right off the bat do i own the car, do i lease the car, or "the car isnt mine." TT does not know I sold is, so do I say I own it even though I sold it?

 

For the car on which you claim mileage - yes - you own the car.
There are different deduction rules for leased car and for the car you do not own.
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
30,132 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Had a substantial casualty loss due to Sandy in 2012.
Had a substantial casualty loss due to Sandy in 2012. Claimed the loss on my tax return in 2013. Resulted in -$39000 in taxable income and zero tax for 2013. 1. Does the extra unused loss of this $390… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Suppose my taxable income in 220,000 this year and the tax
Suppose my taxable income in 220,000 this year and the tax rate is X up to 200K, but Y for 200and over, do I pay Y on the full 220K or just that above 200K? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Can I report rental income in my tax return on a property
Can I report rental income in my tax return on a property thar is owned by my father? He does not live in the US is not a US citizen and can sign a document to allow me to receive the rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Dose mean can not deduct state income taxes only or dose it
dose mean can not deduct state income taxes only or dose it includes property taxes too … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
How to report cancellation of debt on rental property?
I received a 1099-C for my rental property that I held for over 1 year. According to the worksheet provided in IRS Publication 4681 I was insolvent just prior to the debt being canceled. My question i… read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
Under current law a 100,000 taxable income pays $10,365 plus
Under current law a 100,000 taxable income pays $10,365 plus 25% of the amount exceeding $79,400 i.e. about $16,000. Under tax reform will the tax be $25,000? … read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
Is the sale of customer list a capital gain or ordinary income?
Is the sale of self-created intangibles, such customer lists, digital files, web sites, etc subject to capital gain or ordinary income treatment?… read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
Form 1120, cash basis. If Taxes paid to IRS are deductible,
Form 1120, cash basis. If Taxes paid to IRS are deductible, are refunds for overpayment the equivalent of income?… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
723 satisfied customers
I have a question regarding the ordinary income tax. If the
Hello, I have a question regarding the ordinary income tax. If the ordinary income tax due is negative does that apply anywhere? This pertains to the sale of an S corp .business. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Is 1120-S K1 non-passive ordinary income also taxable to
Is 1120-S K1 non-passive ordinary income also taxable to self-employment tax? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,458 satisfied customers
How to report the sale of a property outside US? How to
How to report the sale of a property outside US? How to claim the taxes paid abroad on the profit made by selling property overseas?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Were to report gain on sale of residence used partly for
Were to report gain on sale of residence used partly for business? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What tax form is filed to report dividends paid by US Corp?
What tax form is filed to report dividends paid by a US Corp which is owned by a Canadian Corp? I think it might be 1042S. I want to know the rate of WH.… read more
abci168
abci168
Principal
27 satisfied customers
Can house maintenance and property taxes be deducted on form
Hello. Can house maintenance and property taxes be deducted on form 1041 for a house owned by decedent prior to the Executors selling it? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have prepared my return for 2016 using h&r block software.
I have prepared my return for 2016 using h&r block software. However, I have one question on how to properly account for AMT adjustment. I bought some stock options in 2015, and because my option pric… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
ON A 1041 FORM IS THE TAX FIGURED ON ADJUSTED TOTAL INCOME
STEPHANIE, ON A 1041 FORM IS THE TAX FIGURED ON ADJUSTED TOTAL INCOME MINUS THE 4050 EXEMPTION? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I need the depreciation rate for my 2014 tax return, I now
I need the depreciation rate for my 2014 tax return My name is*****: What kind of computer do you have? Customer: I now have a lenovo and daughter filed for me so not to sava on here … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
What is the specific IRS rule, publication, or regulation
Hello, what is the specific IRS rule, publication, or regulation that says that a taxpayer must pay federal income taxes on lump sum back pay in the year it was received rather than the year it was ea… read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x