I am really hoping someone can help with what I think should be a pretty simple question. Unfortunately, like everything else involving the IRS it seems overly complicated to me.


I do a side gig taking photos for real estate listings. I've done this for a few years now and file schedule C for the self employed income so everything is on the up and up. This is NOT a "big" business. I am talking gross receipts of about $10K/year.



Each year I take a deduction for my business use mileage (keeping accurate records, standard deduction). In 2022 we had three vehicles that were all used to one extent or another. Two of those were traded in on the purchase of a 4th vehicle which was then used for business as well.



I use "FreeTax USA" and here is my question -

On my Schedule C, vehicle expenses I note that I disposed of the traded in vehicles on the date the deal was done along with recording the business mileage used prior to trade in.

I am then asked for the "Depreciation Amount" claimed over ALL years I used the vehicle for business along with the original cost basis and sales price. This "Depreciation Amount" increases the taxes due. Looks like it is tax on the value of the depreciation over the total usage period. Not a big difference, less than $100. My understanding is that basically the depreciation amount is considered "income" and taxed. OK, doesn't make a substantial change to the taxes due, so no issue.




Here are my questions:


Do I record the full "cost basis" (original purchase price) of the vehicle, or just the business portion of the original purchase?


The Tax software DOES say to only include the business use percentage when entering the "sale price" for the trade in vehicle, but it doesn't specify the same for "cost basis". Seems to me it should be "apples to apples" and just enter the business use portion for both values, correct?



Example, one vehicle was used for 2 years and 766 miles out of a total of 21262 miles (3.6% business use).

I list the "Cost or Basis" as original purchase price of $42044 x .036 = $1514

I list the "Sales Price" as trade in value $37000 x .036 = $1332


This ends up showing a Capitol Gain of $1231, which I get is the $1332 trade in portion minus $101 "Adjusted basis" (Form 4797 Part III line 24)


When reviewing the 4797 though, shows on Part III line 21 "Cost or other basis plus expense of sale" as $304, not the $1514 Cost I entered for purchase price. I don't understand how this value gets calculated???


Can anyone help?

Sending you an email.

If you take the 'standard' mileage deduction the depreciation situation does not mean anything to you. If you chose instead to do actual costs then you have to recapture certain items upon sale. Which method are we discussing?

The standard mileage deduction has depreciation built in. When you sell the vehicle, you calculate the amount of depreciation you took by using the standard mileage amount and adjust your basis by that amount. IRS Publication 463 discusses this starting at the bottom of the third column on page 23.

Whatever James said. He is a competent CPA and really helped me out.

Tradeins (which is what I think he did) are considered like kind exchanges and adjust the basis but don't have any gain or loss recognized.

Trapper has the correct Publication and page. You cannot recapture more depreciation than what you have expensed. The trick is to make the software do what you need.

There may be a check box on the disposition screen that says. Standard mileage taken. If not override with your calculations

No. Trumps 2017 tax law limits 1031 to real estate only. I wonder why? No more baseball payers being tax treated as a like kind exchange

James - Got an email referencing IRS Pub 463, I went over it but it was even more confusing. Email reply sent.


Hrcjon/Trapper189 - Yes, I used “standard deduction” for mileage. I understand the part where you calculate the part of the standard deduction that covers depreciation and entered that amount.

Also, yes - traded in two cars for the new one all in one deal.

Using your numbers, I think it should work like this:

1,514 - cost
199 - basis adjustment .26 x 766 = 199
1,315 - adjusted basis
1,332 - selling price
17 - gain on sale

The gain will be ordinary income and not a long term capital gain.

I could be wrong as most of my CPA years were spent as an auditor.

I'm not a CPA and have never played one on TV and all the bean counters out there will tell me I'm wrong...

Just put all your vehicle expenses in the vehicle expenses part and list your milage on the back in it's place and forget that silly deduction thing... with the amount of income you are talking about it really won't matter.

Side note on CPAs... so my wife finally talked me into us filing jointly after 35 years... last year her CPA did not like that I claimed 29,000 in supplies in my business, said the IRS would not like that... so I told her to move $20,000 to materials... so she took the 20 off the supplies but forgot to add it to materials.... I did not catch it on the final declaration and now guess who wants their money back...Social Security... got to jump through hoops to correct this.

All questions answered!

Thanks much to Trapper189 and Jamess1 for explaining it to me.


Blume9mm - I am not by nature a terribly paranoid guy, EXCEPT when it comes to the IRS. My understanding is photographers are one if the most likely to be audited. So I always prefer to err on the conservative side, even if it leaves some cash on the table. I'd rather an audit turn out that I didn't claim stuff that I could have and be in my favor instead of it going the other way around.

911Boss ... are you using a drone ? If so, what ya flying ?

I understand the paranoia about Uncle Sam .... but I've always stayed under the radar or at least assumed I did by the logic that I don't make enough for it to be worth it for them to come look closer at me.

So, I presume if you are using a drone you have the pilots license from the FAA? Getting that is of course tax deductible.....

another side note about CPA's... my wife's old CPA required copies of the receipts for all the donations she makes to different charities.. the new CPA said just list them with the amount and total on one page.....

some people have a need to prove their job, others don't.