Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.
01-22-2018 12:27 PM
My husband owned a Jetta TDI involved in a class action lawsuit, which we settled in March 2017. For most people, the settlement was less than the purchase price of the car, but we'd bought ours used and made about $10k on the sale (it was still only enough to buy a replacement car, but I know it's a capital gain).
We fall firmly in the 0% rate for capital gains, so if I understand this correctly, I report the income, but it doesn't change my taxes.
As we started our taxes, though, I realized another complicating factor: my husband had previously claimed mileage on the car, as he works weekends as a referee. When I mentioned the sale of the car when completing our taxes for that side income, it said I had to report the car as a business gain or loss. To be clear, it was a personal car that had about 250 miles put on it in 2017 as refereeing miles.
My question, in short, is: do I report the capital gains AND the business gain? One and not the other? I did a "trial run" of reporting it as a business gain, and it looked like it taxed me at the 15% rate on it, despite our income being well below $75k/year, even counting that $10k gain.
01-25-2018 06:04 PM
Welcome to H&R Block Community.
According to IRS publication 544, Sales and Other Dispositions of Assets, "if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange separately for the business or rental part and the personal use part. You must subtract depreciation you took or could have taken from the basis of the business or rental part." Also, "you must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part."
In other words, for your situation, you have to report both the capital gains and the business gains on the sale of the vehicle. To do this you have to allocate a portion of the selling price, selling expenses, and basis of the vehicle between the business use and the personal use on this vehicle. The personal-use portion of this vehicle transaction will go on Schedule D/Form 8949 to report the capital gains. The business-use portion goes on the Form 4797.
For the Form 4797, since you mentioned the mileage spent on the vehicle for the husband's referee work, if standard mileage is being used to claim business vehicle expenses on the tax return, you can use the rate of depreciation allowed in standard mileage rate to calculate the depreciation amount to be included on Form 4797. Therefore, if 2017 is the only year that the husband used the vehicle for referee work, then the depreciation would be calculated as 250 miles multiplied by $0.25 rate of depreciation allowed in standard mileage rate for 2017 and enter the result for this depreciation on Form 4797. This $0.25 rate of depreciation allowed in the standard mileage can be found on page 24 of IRS Publication 463.
For more details, regarding the calculation of the depreciation of the vehicle as mentioned above, you can take a look at Publication 463 on the following IRS link: https://www.irs.gov/pub/irs-pdf/p463.pdf.
If you have any questions, I'll be glad to help.
Tax Research Specialist
01-25-2018 06:20 PM
I thought this might be complicated... thank you! So what I would do, if I understand you correctly, is:
I'm sure it will make more sense from within the confines of the software. Does this put me on the right track math-wise?
01-25-2018 07:49 PM
To answer your question:
For your reference, the $0.25 rate of depreciation allowed in standard mileage rate for 2015 and 2016 can be found on page 24 of Publication 463. The following is the IRS link for Publication 463: https://www.irs.gov/pub/irs-pdf/p463.pdf
Tax Research Specialist
01-29-2018 09:08 PM
Thanks again for your assistance.
I followed your advice bullet point by bullet point. Looking through our taxes, the business use did not start until April 2016, and I was able to find the mileage to determine personal vs business use, which ended up being 97%/3%.
So I multiplied the basis and sales price by .97 and 0.03, respectively. It charged me nothing for the business use (which makes sense; the gains came in at $300 or so), but still charged me $200 in taxes for the capital gains, which does not make sense, as I am in the 15% tax bracket, and it says capital gains taxes for that bracket are 0%.
At this point, should I just take our taxes to a professional?
01-30-2018 10:52 AM - edited 01-30-2018 10:54 AM
If you are at a point where you feel the need to take your taxes to a local H&R Block office to handle your tax return, you are more than welcome to do so. To find a local H&R Block Office, the following is the link for the H&R Block's Tax Office Locator: https://www.hrblock.com/tax-offices/local-offices/#!/en/office-locator/
If you happened to be using the H&R Block online tax product, there is a service called Tax Pro Review. Tax Pro Review is where you have an online tax professional to look over your return and make adjustments needed. For more details about Tax Pro Review, go to the following link: https://www.hrblock.com/online-tax-filing/tax-pro-review/
Tax Pro Review is not available for any version of the H&R Block desktop / downloadable software, so if you are using the H&R Block desktop / downloadable software in that case, you can go to a local H&R Block office to handle your return.
Tax Research Specialist