2022 Form 4562 seems to be using wrong number in line1, causing uncorrectable limitation error.

[dginil]

I am getting error message on federal check process after deductions and credits saying my Sec 179 deduction has been limited to zero, and  all $1800 of it needs to be reallocated.  Obviously, I've not surpassed the 7 figure limitations. On Form 4562 TurboTax has populated line 1 with $1,080,000 when the IRS instructions for 2022 say it should be the smaller of total cost of 179 property and the $1,080,000. The figure cannot be overridden.  This pertains solely to tangible property (appliances) placed into service in 2022 at residential rental property owned for many years, and with profits - all schedule E.  What is up with this and what to do?

[PatriciaV]

Occasionally, this will happen if the cost for the new asset or the amount of Section 179 is entered incorrectly. We recommend that you return to your Rental Property and review your entries for this asset, especially any questions about Section 179.

[dginil]

I have reviewed all of the depreciation and sec 179 questions and answers multiple times before posting. They are entirely correct, and only 3 items none above $800.

[dginil]

Also, line 1 of form 4562 requires a calculation of the smaller of the property value I entered and 1,080,000. For that field to have populated at 1,080,000 I would have had to enter a total value of that amount or higher, clearly did not.  Clicking on that number in the line 1 field there is no source to view or way to determine how that was reached, which suggests the problem is in the software, not my entries.

[dginil]

I have since done a new "test" return in TT, using the same Sec 179 property values totaling apprx. $1800. Those values can be seen flowing through correctly to asset sheets and other related forms. 

Again, I get the error message during the check following the deductions and credits section saying that my apprx $1800 Sec 179 deduction has been limited to zero and I must reallocate all of it until I reach $0.

Again, the Form 4562 is improperly showing $1,080,000 on Line 1 rather than the smaller of $1,080,000 and the $1800, as is explained in the IRS instruction for Line 1

I think it is very clear this is not an error in my entries of the property.

Can anyone please explain what the real problem is and how to fix it?

Is anyone else having this problem?

[MarilynG1]

Your Section 179 deduction is also limited to your business' net income for the year—you can't deduct more money than you made. For example, if you have net income of $50,000 before taking the Section 179 deduction into account, and you purchased $60,000 worth of eligible property, your deduction is limited to $50,000.

If this applies, you have other options for deducting the cost of your new appliances for your rental property in their first year of service other than the 179 deduction. 

Any disallowed 179 deductions can be carried over to the next year, however. 

[dginil]

It does not apply, as I have net income over $15,000, ie ten times the amount of my Sec 179 deduction.  It wouldn't explain why my Form 4562 is erroneously showing $1,080,000 on line 1, in any event.

And yes, I can go back and change my election to special depreciation allowance, but it does negatively affect the outcome, at least with respect to my state tax.  I am also mot sure I should assume that TT will correctly reflect that change across all forms and worksheets at this point, considering both the warnings it is giving about being certain you want to make the 179 election as it is difficult to change later, and the unexplained (so far) error on Form 4562 line 1.

[ThomasM125]

You cannot claim section 179 depreciation for residential rental property, it only applies to commercial rentals. That is why you are being denied the deduction. Here a link where you can learn more: 

Section 179 depreciation

While looking at the instructions for line 1 of form 4562, I don't see any reference to the value of the section 179 property, only a mention that it can't exceed $1,080,000 to qualify. In any case, TurboTax populates that figure in that line one no matter how much section 179 property you are declaring, so I don't think that has any bearing on your issue.

@dginil  {Edited 3/3/23 at 6:11 AM PST}

[dginil]

Thank you for the reply.

Please note that IRS instructions for 2022 Form 4562 include Worksheet 1. Worksheet for Lines 1, 3 and 3 (in part copied below) which provide for the calculation of the Line 1 entry for 4562. As you can see, Line 1 of 4562 can never properly be $1,080,000 unless the total cost of the Section 179 property equals or exceeds $1,080,000.  In my case that is not even remotely the situation, and why TT is auto-filling that number instead maybe should be a cause for concern on TT's part. 

The issue of whether Sec 179 may apply to property placed into service in the business of renting residential property may, as you suggest, be the cause of TT's conclusion that the deduction is limited to zero. -- although I don't see any reason under Sec 179 why commercial rentals would qualify but residential ones do not.  I note, however, that the TT interview regarding this situation offers the Sec 179 deduction, I did not seek it.  It was offered only after my selection of answers indicating that the income  being entered was from the rental of multi-dwelling residential properties.  I found that it made no difference in TT's behavior on this calculation whether I selected passive or active participation.  At several further points during completion of the rental section it continues to be offered as an alternative to depreciation with advice that it is a better option where current taxable income will result.  If your advice is correct on this point, then every taxpayer clearly entering residential rental income is being led thru this entire Sec 179 election process for no reason, and learning only after completion of the entirety of the deductions section that their 179 deduction has been limited to zero without explanation, and they now have to reallocate all of it with little guidance.  From a design perspective, I think TT can do better.

Worksheet 1.  

Maximum section 179 limitation calculation.
1.*	Enter total cost of section 179 property (including qualified section 179 real property) placed in service during the tax year beginning in 2022
2.	The maximum section 179 deduction limitation for 2022	$1,080,000
3.	Enter the smaller of line 1 or line 2 here
4.	Enter the amount from line 3 here and on Form 4562, line 1

[DianeW777]

If you like you can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions: 

TurboTax Online:

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

TurboTax CD/Download:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax CD/Download for Windows
2. Select 'Send Tax File to Agent'
3. Write down or send an image of your token number then place in this issue.
4. We can then review your exact scenario for a solution.
5. Please also tell us any states included in the return. 

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution. 

[dginil]

TN 1091251

WI

Thank you.

[DianeW777]

I will try to address your questions.

1. I don't see any reason under Sec 179 why commercial rentals would qualify but residential ones do not.  It's a law that was passed under the Tax Cuts and Jobs Act (TCJA) only for nonresidential/commercial real property qualified for Section 179.
2. The business income limit is what is needed to accept the Section 179 on Line 11, Form 4562. 
   1. Considerations: 
      1. The pluming fixtures and flooring look like repairs to me and could be expensed on your rental as repairs. 
      2. The appliance is really the only asset that should be depreciable and you have the option of using Section 179.
         1. Review your steps when selecting the Section 179 for the specific assets and then please update here if you still have questions.
      3. You could choose to remove the assets and use the De Minimis Safe Harbor Election. Enter all the items under 'Other Expenses' on your rental as De Minimus Safe Harbor.
         1. This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off/deduct items $2,500 or less as expenses instead of assets.
         2. DeMimimis Safe Harbor 

@dginil