Auto Expense - Standard Mileage Rate Prob

[geekgirldany]

Maybe you guys can help me on this.

Here is the story:

New customer came to me. Has a Schedule C business. Prior accountant took standard mileage rate and depreciation on the truck used in the business. The standard mileage rate was used but was not shown on page 2 of Schedule C. He bascially took the business miles for the year and multipiled by the standard mileage rate and put that amount in line 9 Schedule C.

She said she always keeps track of the miles drove for business in a mileage book. That she does not keep receipts. Plus she always told him the miles driven and that she wanted to take the miles becasue they drive so much in their business. Customer believes that you can take depreciation along with standard mileage rate.

So in 2005 she traded the 01 truck (depreciation started in 2000) for a new 2006 truck in Sept 05.

I'm confused on what to do. I know this was done incorrectly as depreciation is always included in the standard mileage rate. Should I list the trade of the truck as though it was a sale? And then just start using standard mileage rate for the new truck? Any suggestions? I just don't know what to do here.

Thank you for any help

[jainen]

It was not a sale

It was not a sale, but a Section 1031 exchange. Her basis in the old truck was reduced by depreciation taken as well as the deemed depreciation in the mileage allowance, so the adjusted basis in the new truck will be substantially lower than the actual cost of acquisition. She can elect either actual expenses (including depreciation) or standard mileage allowance for the new truck, or switch back & forth in future years if she elects standard mileage the first year.

[geekgirldany]

Her basis in the old truck was reduced by depreciation taken as well as the deemed depreciation in the mileage allowance, so the adjusted basis in the new truck will be substantially lower than the actual cost of acquisition.

Thanks Jainen. The depreciation and standard mileage rate both being deducted through me off. And I wasn't sure what to do. Your post helped me alot and I understand what to do now

Thank you again for your help
Danyelle

[solomon]

After taking standard mileage the first, if switch is made to depreciation it must be ADS not MACRS.

[jainen]

Alternative Depreciation System

Alternative Depreciation System IS part of MACRS. The required depreciation is straightline over an actual estimated life (instead of a class life) and adjusting basis for a salvage value.

[Unregistered]

To do this right, you need to go back and amend the open years and add back the depreciation.

[Unregistered]

open years

amend all years

[Unregistered]

To do this right, you need to go back and amend the open years and add back the depreciation.

You don't have to do anything. You may want to advise the client of the mistake and encourage them to have you fix it , but it is in the end the clients problem. You did not prepare the return.

sea-tax

[S T]

Question

Like Dany (sp), I have seen where CPA's, Bookkeepers and other tax preparers and self prpepared taxpayers, have taken the standard mileage rate AND a Depreciation deduction for a vehicle. I don't know if they just don't know, or if they DON'T know what thier software is doing.

So question would be, if on a TRADE, can you just adjust the basis of the old vehicle and reflect the excess depreciation ( which it would seem would eventually catch up somewhere down the line) and report on the form 8824 in the adjusted basis, or IS it really necessary to go back and amend the prior year returns for the excess depreciation claimed.

Curious question!

Sandy

[geekgirldany]

You are right Sandy it is a curious question. I've heard of this being done when they customer didn't have fuel receipts. Like it is a way of estimating what the fuel would have cost?? It seems to me this extra depreciation will eventually catch up. That is why I was not sure how to go about reporting the trade. I've encountered several new things this tax season that just make me wonder what were they thinking.

Yes the correct thing to do is amend all the years. But I seriously doubt the customer would want to do this since it goes back to 2000 and doubt she would want to pay me to do it. I will suggest amending and tell the consequences if it ever does come back to bite her.

[JG EA]

Just a thought

Are you sure they took the standard mileage rate? Could it have been their actual expenses. Also you mentioned the car miles were not on Page 2 of the Sch C. They should not have been there if there was depreciation. The miles should have been on page 2 of the 4562.

[geekgirldany]

Yeah I double checked that. The truck was listed on page 2 of 4562 and then on down listing the business, commuting and then total miles for the year. I took the business miles and multiplied by the 2004 standard mileage rate. It came up to exactly what was on page 1 automobile expenses. Plus there was around $5,000 showing in depreciation from the truck. I got the deprciation worksheet from him to get all the info on the truck.

I mentioned Page 2 Schedule C because I just couldn't figure out why he would do both. I was thinking that it had to be filled out too. But obviously he didn't think so and just stuck the standard mileage rate amount in there and took depreciation too.

I believe she said that he had prepared her taxes for two years. So the standard mileage rate and depreciation deduction might not have been taken since 2000. Just since he had prepared it. I will have to ask.

[jainen]

You are not permitted

>>the correct thing to do is amend all the years<<

You are not permitted to amend anything, because--even though it was wrong--the depreciation has been taken for more than two years. You would have to request a change in accounting method using the automatic change request procedures for Form 3115. The statute of limitation does not apply.

[S T]

So

Back to my previous post, since this is a trade in vehicle can the basis be corrected reflecting the excess depreciation claimed and the component depreciation of the standard mileage rate , which then would be past on to the new vehicle and eventually the excess would be accounted for???

Sandy

[JG EA]

Which leaves you

with the thorny problem of this year. J's post is the answer. If you can catch up the incorrect depreciation now on what they didn't pay before (3115), maybe it can be offset by deductions now.

Turn it to a positive. You've analyzed her return and found an error not in her favor, but you think you can fix it now and start her off correctly with the new vehicle.

Otherwise, it is just covered over and you have to use the wrong basis for the new vehicle.