How do I adjust RE improvement depreciation from the method TT is using? They are using 5 years and I am halfway through a 15 year schedule

[alaimoj733-gmail]

It is zeroing out my depreciation on a furnace and AC installation. My tax preparer has previously used 15 years and I am only half way through.

[Carl]

It's really pointless to change this now. Typically, a new central air unit would be classified as residential rental real estate and depreciated over 27.5 years. But apparently, what you have was classified as an appliance, and therefore depreciated over 5 years. If it's fully depreciated now, you're best to leave well enough alone and move on. Besides, depreciation a new A/C unit which probably cost less than $6K is not going to have any appreciable impact on your tax liability if depreciated over 27.5 years. In fact, it probably won't make one penny of difference in your tax liability.

With the unit fully depreciated now, if you have to replace it in the future (typically 7-10 years) when you show disposal of the depreciated one, there will be no deduction for it, since it's fully depreciated now. But the new one would be correctly classified as rental real estate and depreciated over 27.5 years.

[alaimoj733-gmail]

@Carl Carl, thank you for your response.  Let me clarify the situation.  The furnace was put into service on 11/25/14 and 50% was depreciated in 2014 while the remainder was over 15 years.  The Cost  was $3,800 so $1,900 was applied in 2014 and the remaining $1,900 at $127 p/year.  Therefore there are 8 years remaining.  The same applies to the A/C unit put into service on 04/27/2017 though the numbers are different.  There are 11 years remaining on the AC unit.  So TurboTax asks if I took the 50% in the year the improvements were put into service and them applies a 5 year depreciation to the remaining expense thus indicating that the improvements are fully depreciated.  The depreciation schedule was created by my accountant and I cannot ask why he used 15 years vs. TurboTax using 5 years.   So my question is:  Can the I override the TurboTax calculation so that I don't lose the remaining depreciation, which totals $3,528  

[DianeW777]

Yes, you can make an adjustment for the correct depreciation.  Be sure to keep your records with your tax returns until you fully dispose of the asset(s).  

In your situation where you need to make an unusual adjustment to the depreciation schedule for an asset you can use the following steps. You may need to delete the assets you need to change.

1. Go to your business activity then scroll to Assets to select start or revisit
2. Add another asset and select 'Intangible, Other Property' > Continue > Select 'Other asset type'
3. Continue to follow the prompts, enter 15 year property and when you reach the Section 179 screen put in the 50% used in the first year
4. TurboTax will calculate the correct amount for the current year.
5. When asked about the prior depreciation, use the amount you have used through 2021.  Do NOT duplicate the Section 179 amount a second time.  TurboTax understands and will include it.  
6. See the images below.

[alaimoj733-gmail]

@DianeW777 @Carl   Diane, Thank you!  your solution worked perfectly.  I am all set and able to move on with completing my return.  

[Carl]

Can the I override the TurboTax calculation so that I don't lose the remaining depreciation, which totals $3,528

You can. But if you do, you will not be able to e-file the return. You'll have to print, sign and mail it to the IRS. If a state return is involved here, that would also apply to the state return.

Why they were set up to be depreciated over 15 years is beyond me too. To the best of my knowledge, only land improvements are depreciated over 15 years. For example, a new culvert to replace the collapsed one under the driveway, or installing/rebuilding a retaining wall to stop erosion of the land. A new furnace & Central Air doesn't even come close to a land improvement.

Both of those items became "a permanent and physical part of" the structure. So they should have been classified as Residential Rental Real Estate and depreciated over 27.5 years.

It would appear that in turbotax they have been clssified as appliances, based on the 5-year depreciation you mention. That's just wrong.

Now what you might try, is entering those assets as "other asset" where you can chose the depreciation period and account for the SDA taken the first year. Seeing as when those were placed in service, if they had been properly classified then neither would have been eligible for SEC179 or the SDA (Special Depreciation Allowance).

Besides, it's highly likely that neither SEC179 or SDA would have made any difference in your tax liability anyway. Especially if there's a mortgage on the property.

When you add up the deductible expenses of property taxes, mortgage interest, property insurance and depreciation you're required to take, those four items alone will usually exceed your total rental income for the year. Add to that other deductible expenses (HOA fees, repairs, maintenance, etc.) and you're practically guaranteed to show a loss "on paper" at tax filing time every single year. Those losses just get carried over to the next year, meaning that your carry over losses increase with each passing year. Those losses are "realized" in the tax year you sell the property, thus helping to reduce the taxable amount of any gain on the sale, as well as recaptured depreciation.

Overall, the correct thing to do is to get things right. This is done by filing IRS Form 3115, which while included with the TTX program, it is not simple by any stretch. Do it wrong and it makes things worse. You'll find yourself in a never ending nightmare with the IRS from which you will never awaken. This is exactly why I suggest folks get professional help when it comes to "fixing" things with the 3115. Overall, that's what I recommend. But your other option is to enter those assets in the section for "Other Asset Type" and see what works for you. Just remember, if you do an "override", you will not be able to e-file federal or state.