Depreciation expense calucation seems wrong

[smreno]

Moving from CPA to Turbotax for first time for 2022, I entered all my rental information for one property. The estimated prior year depreciation was slightly off compared to what my CPA listed in their report from 2021 so I adjusted it to match the CPAs, which is $8,372. When I clicked continue it said my 2022 estimated expense is $1,138. My CPA report said it should be $1,144. So not quite right.

If you look at the details in turbotax and do the math, it seems incorrect. Cost basis is $36, 271, land is $4,799, subtracting land you get $31,472.  If you divide this by 27.5 you get $1,144, just like my CPA report says. So why is turbotax coming up with $1,138 instead? I rented full year, no personal use etc, so should be simple. The math seems wrong. How can I make turbotax come up with the right number or figure out what is wrong?

[ThomasM125 · Accepted solution]

The only way you can make TurboTax provide a differen't depreciation figure is to manipulate the prior year's depreciation amount reported. It appears that the program factors that in to the current year depreciation, perhaps to arrive at the proper amount of depreciation deducted by the end of the depreciation period. If you simply divided the basis by 27.5 to arrive at the current year depreciation, then you may not end up deducting the correct amount if you use that figure for 27.5 years, because you may have not deducted the exact amount allowed in the first year in service.

[Carl]

If you divide this by 27.5 you get $1,144, just like my CPA

If your CPA "really" did it that way (I doubt it) they were flat out wrong.  For depreciating rental property, see IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf. Use the MACRS worksheet on page 37. For line 6 of the worksheet, the table that applies is table A-6 on page 72.

You're fine going with what the program calculates. Because the TTX program takes into account "rounding to the nearest dollar" (which the IRS not only allows, but encourages) it's not uncommon for the prior year's depreciation amount to be off a few bucks, which will make the current year's depreciation off a few bucks as well. Since "a few bucks" has absolutely no impact on your tax liability what-so-ever, you're fine. If it's within $5-10, you can leave it alone.

[smreno]

Thanks! I don't really know how they calculated it I was just going by what they have in their "2021 Depreciation and Amortization Report. Maybe it's a coincidence the math works out that way. I assume the IRS will want to see that the accumulated depreciation tracks year to year and therefore come the day of recapture all the math will be correct, regardless of the amount taken each year.

This property was acquired in 2014 and multiple CPAs and myself have been involved along the way filing the taxes. Plus there was a 1031 like kind exchange back in 2016, I am probably missing something that someone did along the way.

Correct me if I'm wong but I think the most important number is the prior years depreciation and it should be what was the ending accumulated depreciation from the prior years tax return. So there is continuity. Whatever TTX calculates using that for current depreciation is just what I'll have to go with, which is not too far off anyway.

Thanks!

[Carl]

I think the most important number is the prior years depreciation and it should be what was the ending accumulated depreciation from the prior years tax return.

For each rental property, you have two Form 4562's which print in landscape format. One is titled "Depreciation and Amortization Report" and is the one you most likely need. The other is titled "Alternative Minimum Tax Depreciation" and applies only if AMT tax applies to you.

Using the first 4562 from tax year 2021, if you add together the amounts in the "prior years depr" column and the "current depreciation" column that total is what your 2022 form 4562 should show for "prior years depr".

Now depending on the software the CPA used (or if they figured it by hand) in the first year using the TTX program it's not at all uncommon for the numbers to be off by a few bucks. Nobody's gonna lose sleep over it.

But if your current year's depreciation was off by a few hundred dollars, that would indicate you entered something wrong. Could be the prior year's depreciation amount, the date in service, the cost basis, business use percentage, days of personal use, etc. But generally, if the numbers generated by TurboTax are within less than 1%, or $5-10, it's close enough to not matter, as it won't change your tax liability.

If you use TurboTax next year and import the data from the .tax2022 file, you'll find the numbers to be spot on.

[Mike9241]

at $1144 (correct) per year and prior accumulated depreciation of $8372 that comes out to 7.318181818 years (8372/1144). subtract 7 whole years leaves 0.318181818 fractional year depreciation for the first year. times 12 months comest to 3.818181818  months which is not possible since only whole months are used. 
at 7 years and 4 months, accumulated deprecation would be 7.333333333333 divided by 27.5 times 31472

or 8393 or 1144 times 7.333333 comes to 8389. whole dollar computations can result in a few dollars variation because 31472/27.5 is 1144.436364. use what the cpa had for accumulate deprecition and don't worry about the few dollar variances.