Form 4797 for listed property that never exceeded 50% business use

Question

My tax software is setting up an IRS Form 4797 for business property that is no longer being used for business. The asset in question is a vehicle that is also listed property and has never been used for more than 50% of the business.

In past years I essentially just deducted a percentage of the total actual depreciation and expenses based on actual use but I ceased using it for business at the end of the prior year and it was traded in. I have never taken any Section 179 deduction on it.

The software wants to add a Form 4797, which I gather was triggered earlier in the interview by me noting the vehicle is now no longer used. I've reached a step that had a checkbox automatically marked for "Sale of business property with a drop of business use to 50% or less".

But the property was never used for more than 50% so it hasn't fallen from a higher number. I'm not sure the software was written to handle or explain this case.

Do I continue with the form, noting that the trade-in value was less than the market value? Or does this form not apply?

Answer 1

You continue with this form. The fact that the trade in value is less than market value doesn't mean that you don't have taxable income from the sale. Since you depreciated the car before selling it, you need to compare the trade in value not to the market value, but to your cost basis, which may be lower.