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NZ11
New Member

Depreciation Calculation for property placed in service mid-year

Hello,

 

I am amending my 2022 return to include rental property depreciation that was excluded in error in my original filing.

 

This was a personal-use condo made available as a rental on July 1, 2022. The property's FMV at time of rental ($278,062) was less than the original cost basis and so was used as the adjustable basis. Based on my state's revenue office guidance, 70% of the condo's FMV is allocated to improvements while 30% is allocated to land. The resulting depreciable basis is $194,643 which is what TurboTax also calculates.

 

The issue I have begins here. Off of this depreciable basis of $194,643, TurboTax calculates the final rental expense depreciation deduction as $1,622. This is 0.833% of the depreciable basis. According to IRS Pub 527, for a residential rental property using GDS and a 27.5 recovery period, which was placed in service in July of Year 1 of service, the depreciation percentage is 1.667%, which is double the calculated expense deduction in TurboTax. The TurboTax calculation appears to be further halving the percentage and deduction that is allowable for half the year per Pub 527. 

 

For those who have experience with the system's calculations of depreciation for rental properties, do you have any thoughts? Am I missing a step in how I would expect the system to calculate the deduction? I appreciate the community's guidance. If I'm not posting in the right place, thanks for pointing me in the right direction.

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1 Reply
PatriciaV
Employee Tax Expert

Depreciation Calculation for property placed in service mid-year

Did you enter 100% business use after you placed it into service on 7/1/2022?

If you didn't report 100% business use, the depreciation would have been reduced.

 

Also, did you report this as property converted to personal use in 2022? How many rental days did you report? The number of rental days might influence the allocation of expenses in the year of conversion.

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