SMR includes depreciation

[Snaggletooth]

Included in the standard mileage rate of (51.5cents, 58.5cents, whatever) is a "depreciation" rate included in the SMR. This is published, and for 2008 is 21 cents/mile.

As a matter of calculation, over the life of an automobile there accumulates a tidy amount of depreciation over the years. The amount is the published rate times the number of miles claimed - if we do this, then no further proration is necessary to establish an amount for "accumulated" depreciation.

Presumably, if the auto is thus sold, there is no deduction for a loss. However, I presume the amount of accumulated depreciation must be recaptured. Why would not the weighted average basis for business use be measured against the sales proceeds? (The sales proceeds would be multiplied by the weighted average business use as well to assure that apples and apples were being compared).

If we are forced to recapture depreciation, then we are not entitled to a loss (or rare gain) upon the sale of the auto??

I expect to receive some standard responses that the laws are not rationale and I need not waste time trying to make sense of them. I hope I receive other responses that attempt to address the issue. Thanks, Snag

[JG EA]

...
Presumably, if the auto is thus sold, there is no deduction for a loss. However, I presume the amount of accumulated depreciation must be recaptured. Why would not the weighted average basis for business use be measured against the sales proceeds? (The sales proceeds would be multiplied by the weighted average business use as well to assure that apples and apples were being compared).

If we are forced to recapture depreciation, then we are not entitled to a loss (or rare gain) upon the sale of the auto??

...Thanks, Snag

CFS has a worksheet that makes the process easier, but you start with the year purchased, total miles, business miles and it calculates the depreciation and business % for each year owned. (You can do it yourself of course.) The result is a sale that is part personal (usually a loss) and part business. It can be a loss and very often is and is certainly deductible, but it is more likely that it is a gain. Goes on the return on 4797.

So, in a sense it is recapturing depreciation just as any business asset as sold. I have found that most people just forget about this, especially when it is on a 2106 instead of on C.

I find it easier to keep a list of the miles on a carryover sheet instead of having to go back and refigure what happened from the beginning.

[veritas]

Time for a shameless plug

Lacerte keeps track of previous mileage numbers and carrys them forward.

[Snaggletooth]

The result is a sale that is part personal (usually a loss) and part business. It can be a loss and very often is and is certainly deductible, but it is more likely that it is a gain. Goes on the return on 4797.

Thanks JG. Apparently we CAN take gain/loss on the business sale of the auto as I have premised above. If most of these are gains, it would certainly be because of depreciation recapture, if the mechanics of 4797 are followed. The "original" unadjusted basis would be the original cost of the vehicle multiplied by the weighted average business use over the years.

I would assume if the vehicle is "traded in" then there would be no gain, but if there is any net basis remaining in this weighted average, it may be added to the business basis of the new vehicle.

Lots of grinding out of costs, years, percentages, etc. but certainly it is something I can do. (And of course charge the client a reasonable fee -- especially if the client is getting the benefit of the deduction)

[Davc]

Lacerte keeps track of previous mileage numbers and carrys them forward.

However, unless they've changed it from when I used Latuit, There was nothing tracking accumulated SMR depreciation or miles by year so you still need to do manual tracking.

[JG EA]

...I would assume if the vehicle is "traded in" then there would be no gain, but if there is any net basis remaining in this weighted average, it may be added to the business basis of the new vehicle.

...

Yes you're welcome, you are correct. CFS has Auto Sale and Auto Trade Worksheets. with either the actual or standard mileage rate methods and I bet veritas' Lacerte certainly has one.

[taxmom34]

this brings a question to mind of a client i have. he is outside sales person and has been using 2106 that goes to schedule A, however he is telling me he wont be able to itemize this year unless he refinances house. what happens to the car when he no longer itemizes? but still uses it in sales

[Nashville]

Depreciable Argument

Good question. IRS insists of recapture of depreciated or "depreciable" amounts whether the depreciation was taken or not. We normally think of this in the context of a rental home or some other real estate where the depreciation was not reported simply due to the creation of a non-deductible or non-reportabledloss.

But here, you've raised the question about a 2106. In this case, the depreciation still exists, but is of no benefit, hence probably not reported. Does the "depreciable" doctrine still hold true? as well as gain/loss when car is sold?

Taxmom, it appears this taxpayer is better off simply NOT REPORTING than to report and fall short of thresholds. Should we insist on making the calculation anyway (and charging the client for our time) just so the IRS can get the future benefit of this and our client gets screwed?

Classic question, Taxmom, and a permeating ethical dilemma that often arises in other situations.

[Gretel]

I don't know if this applies here. There was something about depreciation of OIH that cannot be used because of income limitations and then business stops. This depreciation is not deemed to be allowed or allowable.

[veritas]

he he

However, unless they've changed it from when I used Latuit, There was nothing tracking accumulated SMR depreciation or miles by year so you still need to do manual tracking.

"Latuit" good one.

They apparently have changed because they do track mileage for prior years.