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diy_user
New Member

Depreciation on a rental property

I have a rental property that I have used a Schedule C to depreciate the property which my previous tax preparer had setup in the previous years. This year I am stumped as to what the depreciation expense should be for my rental property. I believe my tax preparer last year used passive activity because I see a worksheet on it. Should this negative amount be carried over? How would I calculate the depreciation for my rental property this year? Also, I made improvements to the home, such as a new front stoop and a walkway and replacing a gas dryer. Is it worth depreciating this? I was looking to collect this upon the future if I decide to sell. Sorry for the overwhelming questions. Thank you.


3 Replies
PatriciaV
Expert Alumni

Depreciation on a rental property

Yes, you should include all rental assets for your Rental Property on your return.

Typically, rental activity is reported on Schedule E, unless you are a real estate professional. If you aren't certain that you should report on Schedule C, you may wish to ask whomever prepared your prior return for an explanation.

In either case, your business/rental assets are reported under Assets/Depreciation, found on the summary page for your property. To find this in TurboTax Desktop, use the Find box at the right of the TurboTax header. Type in "depreciation" then choose the topic for your form (rental or self-employed business). Click the "jump to..." link to go to the start of this section. 

In TurboTax Online, go to My Account in the TurboTax header. Choose "Tools" then "Topic Search." Type in "depreciation and amortization, [farm, rental, self-employed business]" (according to your business type). Then click the topic in the list to go directly to the start of that section.

If you have not yet set up your business/rental property, you will need to work through the setup first. Otherwise, choose the business/property you need to work on and click "edit/update." Work through the screens until you see the summary page (income, expenses, etc). Scroll down to Assets/Depreciation and click "start."

Follow the interview to add a new asset, report the cost basis and the prior depreciation as it appears on the Depreciation Report from your prior year return. TurboTax will handle the current year calculations for you. Depreciation may be the same or different each year, depending on the type of asset and the IRS rules for that category.

The IRS has issued lengthy regulations explaining how to tell the difference between repairs and improvements. Under these IRS rules, a property is improved when it undergoes a "betterment," an "adaptation," or a "restoration." In simple terms, any expenditures that improve the property (add to its potential market value) must be capitalized and depreciated. These costs add to the property basis and are entered as separate assets under the Assets/Depreciation section.

A repair is any expenditure that is not an improvement, but instead returns the property to its former condition. These costs are entered under Repairs in the Expenses section of TurboTax.

Appliances may be depreciated or expensed. If you chose the Safe Harbor Election, you may expense any purchase of $2500 or less. This allows you to write off the expense in one year, rather than five years for depreciation.

If you have Passive Losses from this activity, you may enter that information in TurboTax as well. If you have passive income this year, the passive loss will be used to offset your income. Use the search box to find where to enter your passive loss.

When you sell the property, you will use the remaining basis in the property and all assets to offset the income from the sale, resulting in a capital gain or loss. Your entries over the years you own the property will determine the outcome of the sale, so be sure you are as accurate and complete as possible.

diy_user
New Member

Depreciation on a rental property

Sorry, I did mean the Schedule E. Last year, my tax preparer wrote 5,000 as a depreciation expense. But this year, TurboTax is only seeing the Depreciated Assets as $94 for the two I have specified. Not sure if this is normal. Can you please advise?
PatriciaV
Expert Alumni

Depreciation on a rental property

Yes, it is possible to have a large amount of depreciation in the first year an asset is placed in service (due to Bonus Depreciation or other special depreciation rules). Also, depreciation expense will vary from year to year, depending on the type of asset and its useful life.
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