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Lev I need to report the sale of a car used 60% for business

Lev I need to report the...
Lev
I need to report the sale of a car used 60% for business (I claimed standard mileage).
The car cost $5000
I have taken $6000 depreciation for the business miles (My business miles x depreciation part of the standard mileage deduction.)
I sold the car for $1000
Do I report this in Part III of form 4797?
If so, do I enter $1000 as the sale price, enter $5000 as the cost price, enter $5000 as depreciation (please let me know if I am correct to enter $5000 rather than $6000 which would give a negative basis), enter $0 as the adjusted basis, and declare a gain of $1000?
Or am I supposed to prorate the business portion of the sale and cost, and so enter $600 as sale price (60% of 1000), enter $3000 as cost (60% of 5000), enter $3000 (again let me know if $3000 is correct, versus $6000), enter $0 as the adjusted basis, and declare a gain of $600?
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Answered in 1 hour by:
7/1/2013
Lindie-mod
Category: Tax
Satisfied Customers: 5
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Hello,

I'm Lindie, and I’m a moderator for this topic. I sent your requested professional a message to follow up with you here, when they are back online.

If I can help further, please let me know. Thank you for your continued patience.

Best,

Lindie

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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,724
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to Just Answer! According to the IRS publication 544 - http://www.irs.gov/pub/irs-pdf/p544.pdf

Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property.

So - your first step is to determine the business and personal use percentage. To do so - you should keep track of miles used for personal and business every year - and prorate sale price and basis accordingly.

Assuming you determine that the car was used 60% for business and 30% for personal purposes - thus you will report the sale of car (business portion): -- sale price $1000 * 60% = $600 -- basis $5000 * 60% = $3000 -- when the basis is adjusted by depreciation - it may not be less than zero - so in this example the depreciation adjustment is limited by $3000.

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 needed.

You will report the disposition of the car (business portion only!) on form 4797 - assuming the asset was held more than a year - Part III. Sale price $600, adjusted basis - $3000, depreciation recapture $3000, ordinary income - $600.

Lev
Lev, Tax Advisor
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Customer reply replied 4 years ago
Thanks Lev for your answer.
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