Can I increase rental property depreciation?

[jrb90]

Hi All,

In 2020 I bought a rental property with my girlfriend. We each owned 50% and filed our taxes separately. Therefore, we each divided all tax deductible expenses and rental income by two and submitted in our separate tax forms.

Well, we got married in 2022, so together we own 100% of the property (obviously). Now we are filing jointly, and I'm wondering how to increase the depreciation. Turbotax is pulling my previous year's depreciation for the property which was 50%.

Since 2020, Turbotax has calculated my depreciation over 27.5 years. I'm unclear if it's straightforward in Turbotax to increase depreciation mid-cycle now that we can claim 100% of the property together.

Thanks in advance!

[DianeW777]

You can make the change easily for your 2022 tax return filing jointly.  Change your cost basis to 100% of the cost (building and land) or change your business use percentage to 100% depending on how you entered your asset(s) originally. If you make either of these changes, TurboTax will combine the depreciation used by each of you separately for 2020 -2021, and then calculate the correct current year depreciation at 100% ownership.  The date placed in service will not change.

Keep the records from your girlfriend's return as part of the tax file for 2022.  The asset(s) doesn't really change at all, just the way it's being reported at 100% in 2022 vs 50% on each return for the prior years. 

[Carl]

When you change assets to 100% of their value of 100% business use, the program will automatically figure the combined total depreciation already taken in prior years. But don't forget about your carry over losses if either of you have those. They are not automatically combined.

If you have carry over losses, they'd be on form 8582.

[jrb90]

Thank you! This makes sense. Appreciate the help.

[jrb90]

Good looking out! Do we simply add our carryover losses from our 8582 forms last year and submit those?

[Carl]

It's perfectly possible that only one of you, neither of you, or both of you will have carry over losses. Starting in 2018, you can deduct up to $25K of your passive losses from other "ordinary" income each year, if certain criteria are met. Thats why carry over losses are not a "sure thing".

But if you have carry over losses last year, add those losses together form your two 2021 form 8582's and use that total on your 2022 joint tax return.

The loss if any, will be on the 8582 par VII column c. If your only passive income is from this rental property, that will be all that's shown in section VII.