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, page 24.

To enter the information for the sale of the vehicle in the TaxAct program (if you need help accessing Schedule C, go to our Schedule C - Entering Sole Proprietorship in Program FAQ):

1. From within your Schedule C, continue with the interview process until you reach the screen titled Great! Let's get started on expenses for [Business], then click Enter expenses.
2. On the screen titled Would you like to review vehicle expenses for this business?, click Yes.
3. Continue with the interview process to enter your information.

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, page 23:

Disposition of a Car

If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of any gain that is due to depreciation (including any section 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), and special depreciation allowance) that you claimed on the car will be treated as ordinary income. However, you may not 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 or other reimbursement that is more than your adjusted basis in your car. If you then spend all of the proceeds to acquire replacement property(a new car or repairs to the old car) within a specified period of time, you don’t recognize any 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 is recognized. (For exceptions, see chapter 1 of Pub. 544.) In a trade-in situation, your basis in the new property is generally your adjusted basis in the old property plus any additional amount you pay. (See Unadjusted basis, earlier.)

Depreciation adjustment when you used the standard mileage rate. If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the Rate of Depreciation Allowed in Standard Mileage Rate table later. You must reduce your basis in your car (but not below zero) by the amount of this depreciation.

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 for business, no adjustment (reduction) to the standard mileage rate is necessary. Use the full standard mileage rate (58.5 cents (0.585) from January 1-June 30, and 62.5 July 1-December 31 per mile for 2022) Announcement 2022-03

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

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.