I am using Turbo Tax Business to file a 1065 for a small farm. I am depreciating two shipping containers using the Bonus/Special Depreciation. We are just getting the farm started so for 2022 there is no income. We purchased the containers using personal funds and contributed them to the farm business.
Here is the question: The 1065 and K1's show the entire loss and it flows to our personal return. My understanding is that the loss from this special depreciation for the farm should be allowed in 2022 on our personal return (Home & Business) because we have personal income that exceeds the farm loss. I don't know if I've entered something incorrectly, but none of the farm loss is being allowed on the personal return. It is being setup as a carryover.
Then, just as a test, I tried entering the same information into Turbo Tax (on our personal return) on Schedule F. It allowed the entire farm loss.
What am I missing?
The form you file is dependent on how your farm is organized as a business. Also, businesses taking the Section 179 deduction or bonus depreciation are limited:
Per the IRS:
The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business.
If the farm ownership is set up as a partnership or multi-member LLC you are required to file a Form 1065.
If the farm is organized as a married LLC in a community property state or if it is a qualified joint venture, you will report the farm on Schedule F of your Form 1040. In these cases, the farm would be considered a disregarded entity and although the depreciation is still a business expense (to the farm), all the personal income on the return is eligible to be offset by the depreciation.