Problems with recording depreciation for sale of rental property

[Keithjwaz]

Hi,

I am using Turbo Tax Business 2021 to complete a return for a simple trust.

The trust has basic income from sources including divided income and a rental property income (residential house rental). 

In 2021, the trust sold the rental property early in the year. I previously had the rental property set up as a set of assets for depreciation including building/land, improvements that were made in one time period, and improvements made in a second time period, etc.  Each asset class had its own valuation and depreciation. I believe that everything was partitioned correctly. The total depreciation (accumulated) that was claimed in previous filing was in the neighborhood of < $25,000 but TT (using its internal calculation) thinks the  accumulated depreciation is > $200,000. 

In selling the property, I went into TT and allocated an acquisition price and sale value for each asset.

The problem I am running into is with the depreciation of each of these assets.

The property was acquired many years ago and for many of the years the property was not used as a rental property. Because of this, the depreciation that TT calculates is not correct for each asset.  I'm having trouble overriding the computed depreciation due to this.

The property has a loss as the sales price is less than the combined recorded assets (original purchase price for the building/land, a 2004 remodel cost, and a 2015 property improvement cost). As TT walks me through each asset to record the sale, I've noticed that the depreciation is way off for each asset. (TT thinks that much more depreciation was taken then was actually used.) This actually creates a sizeable gain on the Schedule D (line 14 picked up from FORM 4797).  I was assuming to see a sizable loss because of the loss incurred from selling the property and the fact that the depreciation of the assets was low over the past years.

My question is as follows: how do I adjust the depreciation for each asset so that the correct amounts are being used? Is this something that I need to override in a form?

I tried the following but did not get the results I was expecting:

1. Rentals and Royalties: Select Update

2. Schedule E: Edit

3. Edit property, select as a rental property, select "this rental property was sold" etc.

4. Entered rental property data for the year (income, costs, etc.)

5. At the Rental Asset Summary screen I selected each asset, and this is where I noticed the Depreciation for all prior years was way off.

6. I tried changing the Depreciation for all prior years manually for an asset but after doing this and checking the actual return that was generated, the AMT was triggered and the tax due went way up. So I'm thinking this is not the correct way to adjust the depreciation.

Any help you could provide would be much appreciated.

Thanks

Keith

[tagteam]

The only solution (viable) for this issue might be to complete the Asset Entry Worksheets entirely in Forms Mode.

[Keithjwaz]

Oh okay. Thanks much for pointing me in the right direction. 

I'm assuming that I pull up the Forms feature and then look for the Asset worksheets as you've outlined. I'll try that next.

Have a great weekend.

Keith

[Mike9241]

this may not be a situation Turbotax can handle even in forms mode. if not your choices will be to prepare parts of your return manually and mail it in or seek the services of a pro which normally have more sophisticated software to handle situations like  yours

[tagteam]

I agree.

However, Forms Mode can accommodate almost any scenario (assuming the necessary forms are available, which is usually the case), but, in some instances, overrides are required, and the user really has to know what they are doing. in those cases, a tax professional is highly preferred.

[Keithjwaz]

Thanks so much for your help. It is much appreciated.  I really appreciate people like you who take the time to do this and provide feedback.

I was able to go into the forms mode easily and update the Asset Entry Worksheet to put in the correct prior year depreciation for each asset.  The one thing I wanted to check on is that with the form there is the line item and the two columns as follows:

                                                                                      Regular Tax                                   AMT

Prior Depreciation:                                                   $12,300                                           $12,300

I'm assuming that I should put in the same value for both columns (regular tax and AMT), since this would be the correct value that was recorded for prior years. (I put in the above values as an example!)

I believe that the problem I had earlier was that when I used TT in the non-form mode and that when I overrode the prior depreciation values, only the column "Regular Tax" was updated creating a situation that the AMT was really thrown out of whack. 

I just wanted to make sure that I am handling AMT correctly. It only makes sense that I should record the disposition of the asset exactly as it should be and that the AMT value should correspond with the Regular Tax.

Thanks

Keith

[tagteam]

They are most likely the same unless the assets were placed in service a long time ago.