If you’ve used your personal vehicle for business—whether you’re a sole proprietor or you received mileage reimbursement from your S or C corporation—there may be a valuable tax deduction waiting for you.
When you (or your company) use the IRS standard mileage rate, the mileage rate is not just a substitute for gas and maintenance. You’re also claiming “embedded depreciation”—a hidden deduction built into the mileage rate.
Here’s where the surprise comes in: when you sell or trade in that vehicle, you could be eligible for a significant additional deduction tied to that depreciation.
How Does it Work?
Let’s say you bought a $50,000 vehicle in 2021 and used it 80 percent for business. Over the past 4.5 years, you have accumulated nearly 40,000 business miles and received deductions or reimbursements based on the IRS mileage rate. You then sell the vehicle for $20,000.
By calculating the business-use portion of the sale and subtracting your embedded depreciation, you might unlock a $12,937 ordinary loss. This is fully deductible against your other income, under Section 1231 of the tax code.
This isn’t a tax loophole—it’s standard tax law, but it’s often overlooked. And it only applies if your vehicle was
1. deducted or reimbursed using the standard mileage rate,
2. used at least partially for business, and
3. sold or traded in after accumulating depreciation.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
Welcome to the Sterling Standard of business! Want to learn more? Schedule a meeting with our tax planning team here: https://www.sterling.cpa/contact-us/
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