Investors & landlords
Hello Diane,
Thank you for those additional comments. Greatly appreciated as usual!
I applied a couple of your suggestions, but need a little more direction on a few others.
Loan Fees:
I still need some clarity on the 2nd bullet - how to treat an Asset/Depreciation line item for a relinquished property. In general, I understand that you are indicating that in an exchange an Asset/Deprecation line item is never really sold, but instead will continue as if you never exchanged the property.
- For my first relinquished property that incurred the exchange in 2022, I believe I need to remove this property from my 2023 return (which I believe we discussed), as I am currently receiving errors in the error check as it was used for 0 days as a rental property in 2023. However, this asset still has loan fees/points that can be depreciated. With that it seems like the only choice is to continue that depreciation as a new asset under each of the respective replacement properties. Because I had 3 replacement properties, the loan's remaining depreciation needs to be split up across each of the 3 properties. Therefore, the original loan's cost and prior depreciation would be split up across each of the 3 properties using the original Date of the loan. Please confirm.
- For my second relinquished property that incurred the exchange in 2023, this property should remain in my 2023 tax return, as it was rented for a portion of time during 2023. With that, I can keep all of the asset/depreciation line items intact. As it stands now, by not populating an asset sold date, a full years worth of depreciation has been recognized for the relinquished property for that line item, whether that is part of the property depreciation, loan fee/points depreciation, etc. When I setup the replacement properties and apportion to them the remaining original basis (that has already subtracted out the full years worth of depreciation taken by the relinquished property in 2023), those properties are calculating a depreciation expense (at least for the non mineral rights property). With that, I'm left with the question of is there overlap there? If I took 12 months worth of property depreciation as tied to the relinquished property, is it correct that I am taking any deprecation for the replacement properties in the 2023 tax year? Please provide your thoughts.
Partnership LLC:
I've gone ahead and made the updates you recommended for points 1, 2, and 3. I then went onto the State portion of the returns in which I have to file for California (where I reside) and Colorado (where the partner LLC was established). I have a few questions as I navigated through both states:
- California state return:
- Investment Income Adjustment section:
- It is referring to the Royalty income from Schedule E. Is that specific to the royalty payments received from the oil and gas mineral rights, or does that include other properties such as a rental house or convenience store?
- It states,... If the California amount is more than the federal amount, enter the difference as a positive number. If it is smaller, enter it as a negative number. Right now it is blank, which I guess means there is no adjustment. How would I determine that? Is it ok if I leave it blank?
- Investment Income Adjustment section:
- Colorado State Return:
- Business Schedule K-1 section: Not sure if I need to populate anything in this section, which contains "State Income Tax Addback", "Increases to Income", and "Decreases to Income". Any guidance here would be so greatly appreciated. This is my first time completing this section.
- Colorado Portion of Gains or Losses: There is a Federal box which has $130k, and a Colorado box which starts out as blank. Initially I was expecting the Federal box to equal my K-1's capital gain - $133k (all proceeds coming from Colorado). However, it shows $130k, because it also includes gains or losses from my stock market investments. With that, is it correct to enter $133k into the Colorado box as the capital gain attributed to Colorado, even though the Federal box states $130k?
- I've included a screen shot to assist with my previous #5 question that was a little confusing. I'm just trying to indicate that after I entered all of the K-1 information, the Schedules K-1 line item in the Business Items section of the Wages and Income root section still shows a $0 value. I'd expect that number to change, as the taxes due did increase once I included that capital gain in that section.
Your insight will be so greatly appreciated Diane.
Thanks so much!
Jamie
