I put a residential rental property into service in 2019 and claimed a ~$37K special deduction for interior upgrades. With the annual depreciation alone, this property produces a small passive loss. In 2019, 2020, & 2021 I also received passive income from a K-1 real estate investment. The rental loss offset the gains for a net $0 taxable amount. However, in 2019 and 2020 I had lots of unused depreciation to carry forward.
In 2021, the passive gain in the K-1 investment exceeded the passive loss realized in 2021 so I had expected turbotax to use the carried depreciation from the previous years to net this to zero. TT-Premier did NOT do this and instead I now show a modest taxable passive gain.
Both the rental property and the special deduction were entered as formal assets in 2019 TT-Premier and those assets are automatically being carried over into 2020 and 2021. Why is unused depreciation from the previous years not being used to offset passive income realized in 2021? What is the recommended workaround?
FWIW, I've used the TT-Premier desktop edition for all three years in question and my MAGI is >$150K so I'm not talking about offsets to active income. I'd just like my passive holdings to continue to net out to a $0 amount for 2021 and beyond which they should given that I haven't used a penny of the one time "special depreciation" amount from 2019.
