Charter boat depreciation not calculated by TurboTax

[wrnoof]

My wife and I are 50/50 partners in an LLC. The LLC owns a sailboat managed by a charter company in the British Virgin Islands. Under the management agreement, the charter company handles all operating expenses of the boat and pays us a fixed amount every month for the term of the agreement, which ends in June of 2021. In addition, we make use of the boat or another like boat in the charter fleet for about 10% of the time. The LLC pays debt service on the boat out of the monthly fees paid to the LLC by the charter company. For 2017 and 2018, an accountant prepared the partnership return for the LLC and calculated MACRS, 150% DB, 15 year depreciation, which resulted in a net loss for the LLC even before interest on the boat loan. We have never deducted this loss from our individual tax returns since this is likely a hobby business. Our goal has been to avoid taxes on the management agreement revenue.

This year we decided to use TurboTax and, after doing the interview and looking at the forms, are told no depreciation is allowed for this asset. A quick look at the Asset Life History form tells me the program has calculated no depreciable basis for this asset, which I think should be the purchase price less previous depreciation. This does not seem right. Is the program mistaken or am I?

Also, is this boat listed property? I cannot determine from this form or the IRS documents.

[ThomasM125]

The boat would be depreciated if associated with a business. The only asset that would not be depreciated would be land or an intangible asset, on which you would take amortization.

It may be that you chose the wrong type of asset, or maybe because you are associating it with a hobby it is not deductible for some reason.

It would not be listed property in my opinion, as that is reserved primarily for vehicles and computer equipment.

[wrnoof]

Thanks so much for your response. I agree it is depreciable. Regarding a hobby business, there was no option in the interview or the forms for indicating such. I think the only election to be a hobby or not is when we decide whether to carry any loss or income over to the individualreturn. The LLC is entitled to deduct depreciation and interest up to the amount of the LLC revenue. If the LLC shows a loss, then and only then I believe, does the issue of hobby or business come into play and even then only if we deduct the loss in our individual return. If we choose not to deduct the LLC loss in our individual return, discretion becomes the better part of valor in that we avoid challenging IRS on the hobby issue.

I have tried with and without the listed property option with no results. So, I am still stuck with the question: why won't the software calculate depreciation for my boat? Why is the depreciable basis set to zero? I have not ruled out a coding error. There is always the overide option to manually input the basis and may resort to that.

[ColeenD3]

Try to delete the depreciation section and start over, carefully looking at your entries. Maybe restart your computer and clear cache and cookies just as a precaution.

To Delete a Form

Open your return in TurboTax. 

• In the left side bar, select Tax Tools> Tools.
• In the pop-up window Tool Center, choose Delete a form.
• Select Delete next to the form/schedule/worksheet and follow the onscreen instructions

[wrnoof]

After considerable research and scrolling down to the bottom of the "Federal Asset Entry Worksheet", I found I needed to enter BOTH the asset class and the recovery period. The interview asks only for the asset class, and recovery period must be entered manually in the worksheet form. I found asset class selection does not change the result except, if an unacceptable class is chosen, no depreciation will be calculated in that event either.

Thanks for your interest and offers of help.

Bob