44.9 Sale of Property Used for Business and Personal Purposes

One sale will be reported as two separate sales for tax purposes when you sell a car or any other equipment used for business and personal purposes, or in some cases where a sold residence (29.7) was used partly as a residence and partly as a place of business or to produce rent income.

You allocate the sales price and the basis of the property between the business portion and the personal portion. The allocation is based on use. For example, with a car, the allocation is based on mileage used in business and personal driving.

EXAMPLE
Two partners bought an airplane for about $54,000. They used approximately 75% of its flying time for personal flights and 25% for business flights. After using the plane for eight years, they sold it for about $35,000. Depreciation taken on the business part of the plane amounted to $13,000. The partners figured they incurred a loss of $6,000 on the sale. The IRS, allocating the proceeds and basis between business and personal use, claimed they realized a profit of $8,250 on the business part of the plane and a nondeductible loss of $14,250 on the personal part. The allocation was as follows:
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The partners argued that the IRS could not split the sale into two separate sales. They sold only one airplane and therefore there was only one sale. A federal district court and appeals court disagreed and held that the IRS method of allocation is practical and fair.
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