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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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I'm self-employed. I traded in a car I use partially. first

Customer Question

I'm self-employed. I traded in a car I use partially for business. For the first two years I claimed it for business (2002 and 2003), I used depreciation. Then I switched to the standard mileage deduction, which I now know I shouldn't have done. I read that you only depreciate for five years, which I'm way beyond. Also, the business percentage increased over the years. Can you suggest how to handle the calculations for depreciation and trade-in? Thank you!
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax. I can assist.

Both issues are surprisingly involved. IRS did put good examples together on the subjects. I'll find those examples and reproduce them here.

I'm working on a phone, so I may need to move to a laptop for this.

Customer: replied 1 year ago.
That's fine. I have looked at some examples, but since they don't show any of people doing what I did--since you aren't supposed to--they haven't helped.
Customer: replied 1 year ago.
PS I'll be away from my computer for a few hours, so won't be able to respond immediately.
Expert:  PDtax replied 1 year ago.

Right. You know you aren't supposed to switch to mileage after the first year. The example page I went to has the trade-in math, but not this issue. Depreciation recapture rules cover the topic.

What you did was used an inappropriate method. What you're supposed to do is amend and fix the errors, using 1040x. I suspect the errors do not warrant amendment.

When you do the trade in math, you use both the depreciation claimed and the depreciation piece in the mileage rate.

I'll post an example shortly.

Expert:  PDtax replied 1 year ago.

My example assumed you would have claimed more depreciation over time than had you used the correct method throughout. The depreciating recapture rules cover this.

Let's say you claimed $5,000 in depreciation, and an additional 3,000 in depreciation included in the mileage method, but you should have claimed $5,000 plus $5,500 had you not changed methods in error. You are to use 10,500 tho determine depreciation recapture.

1. You need to do the math, and claim the higher of the two depreciation totals for the trade in.

Expert:  PDtax replied 1 year ago.

2. I thought i could find the example i know of online, but i can not.

I will need to ask for a price bump for the time to find the example you need.

I'll post an offer to do so. Accept, and I'll dig into our research library.

Customer: replied 1 year ago.
Thanks for your advice. I will decline your offer of more research and just do my best on this end.