Do you have secret cash in your vehicle?

If you have been taking the IRS standard mileage rate there is a component, let's say $0.25 a mile, for depreciation.  The $0.25 for depreciation just might hold the key to finding secret cash. Most people who use the IRS standard mileage rate assume that once they use the IRS rate, they are done, and they have nothing else to consider on that vehicle. That is incorrect. Most accountants do not take the time to find their clients' Secret Cash.

For example, if you have used your vehicle for business purposes - perhaps 90% or 100% of the time. Whatever the percentage, you or your tax preparer should know or calculate your basis in the vehicle. Your basis is the vehicle's cost minus the depreciation amount the IRS states in your mileage rate.

If you acquire a vehicle for $35,000. Then, you decide to sell your vehicle and, at that time, you have taken $7,500 of depreciation. Based on the mileage depreciation number, your car is now worth (in your hands) $27,500 ($35,000 - $7,500 = $27,500). If you sell this car for $15,000, you actually have a $12,500 loss ($27,500 remaining cost basis less $15,000 selling price). Now you have created a tax return loss in the amount of $12,500.

Beware, if you trade-in the car and buy a replacement, this will not work.  When you trade in a car, you are taking the basis of the old car and adding it to the new car cost, which most likely will never be fully depreciated.