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Level 2

Can't figure out how Line 18 on Schedule E was calculated

I would like some clarification on how the value entered on line 18 of Schedule E (Depreciation expense or depletion) is calculated. That value was \$2,433 on the most recent tax return I filed earlier this year, and I can't figure out how that number is calculated.

For some background context, I purchased a two-family home in 2020, with tenants living in one of the units and I'm living in the other unit. Both units are equally sized. On this website it states:
> "The IRS even allows you to depreciate the rented half of your property. This is a process that lets you take the purchase price of the building, but not the land, divide it in half for the rented unit, then divide it by 27.5 to get an annual depreciation write off. In other words, if you buy a \$600,000 duplex that sits on \$150,000 worth of land, you can depreciate \$225,000 and write off \$8,182 a year for 27 years".

The purchase price I paid was \$463,000. And according to my county's tax info website, the value of the land for this property is \$76,000. Applying the logic from the example above, 463k - 76k = 387k. That divided by 2 is 193.5k. And THAT divided by 27.5 is \$7,036. Because I purchased the property in the middle of the year, I wouldn't expect the depreciation amount to be that full value, since that would only be for a full year of rental use. The "Fair Rental Days" amount was 252 last year, and that divided by 366 is 68.9%. So my expectation is the depreciation amount for last year would have been 68.9% of \$7,036, which is \$4,847. But that amount is almost TWICE as much as the \$2,433 entered on line 18, so either my understanding of this calculation is far from accurate, or I somehow botched the inputing of data, which I doubt because I used TurboTax Premium and went over everything with live customer support before submitting the return just to make sure there were no mistakes.

However after doing some more research, I found another article explaining a different way of calculating the building portion of the property, and that is to apply the tax card's building ratio to the purchase price. In my case, the land portion is 76k, and the total assessed value is 231k. 76/231 is 32.9% (the land ratio). So the building ratio would be 1 minus that, or 67.1%. That percentage of the house's purchase price (463k) is \$310,673. Dividing that in half is \$155,337. And that divided by 27.5 is \$5,648. Finally multiplying that amount by 68.9% (from the 252/366 the fair rental days ratio), returns a total of \$3,892, still a large amount above the value entered on line 18.

So what could have led to the \$2,433 amount being entered on Line 18? Are there common mistakes that lead other people's returns to have an inaccurate amount for that line? Or maybe the two sites I linked to above coincidentally have misleading info that threw me off. Any and all insight will be appreciated.

4 Replies
Level 10

Can't figure out how Line 18 on Schedule E was calculated

Don't mess with "Fair Rental Days"......make sure the dates you purchased the property and the dates placed in service are accurate and it's 100% business use on the \$193.5k. I have software based on Turbotax and I get \$3225 for depreciation when placed in service on 7/1/2020.

Level 2

Can't figure out how Line 18 on Schedule E was calculated

I didn't intentionally mess with the Fair Rental Days field - I'm certain there was some prompt within the online TurboTax forms that asked me when the rental half of the house started being used as a rental, and it just happened to be the day I purchased it since there were tenants already living in that unit.

The 193.5k you referenced is already from after dividing the assumed building value in half, so yes it would be 100% business use.

Level 15

Can't figure out how Line 18 on Schedule E was calculated

for real property, depreciation is computed using the mid-month convention.

so if you purchased it in April (based on what you supplied as fair rental days)  you would only get 1/2 month depreciation for April and then a full month for the rest of the year 8.5 in all.

i agree a full year s/b \$5648 (based on the tax basis of 1/2 the building being \$155,337) and thus depreciation should be 8.5/12 of a full year or \$4001. rental days do not enter into the computation of depreciation. if you changed FRD to 10 I'd bet depreciation wouldn't change from what you have. I assume you use 0 for personal use days.  \$2433 make no sense to me. it almost seems like TT took 1/2 the total cost and then subtracted the full cost of the land to come up with the depreciable basis of the building.

my guess is that somewhere in answering TT questions something was entered incorrectly.   we can't see your return

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Level 15

Can't figure out how Line 18 on Schedule E was calculated

Don't forget that the land value needs to be removed from the total cost before you start depreciating. Land is never depreciated.

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