Maria sells the automobile she uses in her job as a marketing representative for $3,000. The car cost $15,000 four years earlier. Maria uses the automobile 80% of the time in her job and 20% of the time for personal purposes. At the date of sale, Maria had taken $10,000 in depreciation on the automobile. Write a letter to Maria explaining the amount and character of her realized gain or loss from the sale and how much she must recognize for tax purposes.
Because Maria uses the automobile for business and personal purposes, the basis and the sale of the automobile must be broken into the portions attributable to both uses:
80% 20%
Total Business Personal
Selling price $ 3,000 $ 2,400 $ 600
Adjusted basis
Initial basis $ 15,000 $ 12,000 $ 3,000
Depreciation (10,000) 5,000 (10,000) 2,000 -0- 3,000
Gain (Loss) on sale $ (2,000) $ 400 $ (2,400)
The $400 gain on the business portion of the automobile is a Section 1231 gain. However, because the automobile is Section 1245 property, the $400 gain is recaptured as ordinary income. The $2,400 loss is a non-deductible personal use loss.
