If you sell a vehicle for which the Standard Mileage rate was used for deduction purposes in your business, there is a depreciation adjustment that must be made when accounting for the sale on your tax return. Because depreciation expense was already included in the Standard Mileage rate (the IRS figures it into the calculation of the rate each year), this depreciation amount must be calculated in order to adjust the basis of the vehicle when you sell that vehicle.
A good example of disposing of a vehicle on which you took the Standard Mileage deduction is in IRS Publication 463 Travel, Gift, and Car Expenses, on page 24.
To enter the information for the sale of the vehicle in the TaxAct program:
If, on the screen titled Vehicles - Actual or Standard, you had selected "Standard mileage rate," you will not see the screens to enter the disposal information. This is because when taking the Standard Mileage rate, depreciation is not necessary as it's already included. You will want to continue until you reach the screen titled Asset Sale - Assets Sold, where you can enter the disposal information since depreciation was not entered previously. Click Yes and proceed through the interview screens; OR
If, on the screen titled Vehicles - Actual or Standard, you had selected "Actual expenses," you can continue through the Q&A until you reach the screen titled Depreciation - Disposed to start entering the disposal information.
Per IRS Publication 463, on page 23:
If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of anygain that is due to depreciation (including anysection 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service beforeJanuary 1, 2006), and special depreciation allowance) that you claimed on the car will betreated as ordinary income. However, you maynot have to recognize a gain or loss if you dispose of the car because of a casualty or theft.
This section gives some general information about dispositions of cars. For information on how to report the disposition of your car, see Pub. 544.
Note. Like-kind exchanges completed after December 31, 2017, generally are limited to exchanges of real property not held primarily for sale.
Casualty or theft. For a casualty or theft, again results when you receive insurance orother reimbursement that is more than your adjusted basis in your car. If you then spend all ofthe proceeds to acquire replacement property(a new car or repairs to the old car) within aspecified period of time, you don’t recognizeany gain. Your basis in the replacement property is its cost minus any gain that isn’t recognized. See Pub. 547 for more information.
Trade-in. When you trade in an old car for anew one, the transaction is considered alike-kind exchange. Generally, no gain or loss isrecognized. (For exceptions, see chapter 1 ofPub. 544.) In a trade-in situation, your basis inthe new property is generally your adjusted basis in the old property plus any additionalamount you pay. (See Unadjusted basis, earlier.)
Depreciation adjustment when you used the standard mileage rate. If you used thestandard mileage rate for the business use ofyour car, depreciation was included in that rate.The rate of depreciation that was allowed in thestandard mileage rate is shown in the Rate ofDepreciation Allowed in Standard Mileage Ratetable, later. You must reduce your basis in yourcar (but not below zero) by the amount of thisdepreciation.
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 forbusiness, no adjustment (reduction) to thestandard mileage rate is necessary. Use the fullstandard mileage rate (57.5 cents (0.575) permile for 2020) for business miles driven.
TIP: These rates don’t apply for any year in which the actual expenses method was used.
Rate of Depreciation Allowed in Standard Mileage Rate
Rate per Mile
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.