Assets/Depreciation summary

[LarryCWalters]

I am trying to arrive at the appropriate deduction for depreciation on my rental property. I have entered the individual assets, and TT calculates the depreciation for each. But the total shown in the Rental Summary is significantly less than the sum of the individual totals. And the amount varies with the number of days of personal use I enter. I arbitrarily entered a large number (300) and the summary depreciation increased by a factor of 10. What am I missing here?

[Carl]

Perhaps personal use days is supposed to be ZERO? If this is a case where you converted personal use property to residential rental real estate, then what you used the property for before you converted it to a rental, do NOT count for anything. Personal use days would be ZERO.

If this is a vacation rental, then personal use days "DO" matter and do affect depreciation, regardless of when it was converted to a rental.

[RaifH]

Property that is used for both personal use and as a rental has special rules. As @Carl mentions above, property that is a mix between personal and business use is treated differently by the IRS than property that is exclusively used as a rental, even if it was not rented out for all 365 days of the year.

If the property is used both as a rental and for personal use, as in the vacation rental example, operating expenses for the property, such as repairs and taxes can be deducted in their entirety, but you can only take depreciation as an expense if there is still income from the rental property after the operating expenses have already been deducted. The remainder of the depreciation that you do not take in this year carries forward to future years. 

The reason why your depreciation expense went up when you entered a large number of personal use days was that the operating expenses went down which left you with more rental income which could be offset by your depreciation. The operating expenses went down because more of them were assigned to personal use and therefore weren't deductible from your rental income, although the personal portion of property taxes and mortgage interest may still be deductible as an itemized deduction.

The IRS provides a worksheet that may help explain rental properties that were also used as a home. TurboTax does all these calculations behind the scenes, and if there is excess depreciation that will carry forward to future tax years, it will do that as well. To see the amount of your deducible rental expenses in TurboTax Online:

1. Use the Search feature to look for Schedule E.
2. Click Edit next to your property
3. Compare the Rental Income to the Total Expenses. The difference should be your depreciation deduction for this year for that property as long as the depreciation deduction for this year would be large enough. Any remaining amount of depreciation would carry forward to future years. 

[LarryCWalters]

Very helpful. Thank you.