How can I correct the value Turbotax has computed the depreciation for my rental property (it should be cost basis divided by 27.5 but is not)

[tomgoldberg]

basis is $449k, usage % is 98.7, 27.5 year SL depreciation should be $16,126 but turbotax says $12,310

[Carl]

it's not that simple, and the math does not work that way. See IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf.

For residential rental real estate use the MACRS worksheet on page 36. For line 6 of that worksheet, Table A-6 on page 71 is used.

If you've entered everything correctly in the program, you'll most likely find the depreciation to be spot on correct.

[Carl]

Another thing.

usage % is 98.7

How do you get 98.7%? If there was no personal use of the property *AFTER* you converted it to a rental, then it's 100% business use. Vacant days between renters "DO NOT" count as personal use days, unless you actually lived in the property as your primary residence, 2nd home, vacation home, or any other "personal pleasure" type of use. Living in the property for the primary purpose of preparing it for the next renter is not personal use.

[tomgoldberg]

Turbotax calculated that percentage based on the data I input that it rented for 80 nights and I stayed in it one night (short term rental ski condo).

Is this not correct?

[tomgoldberg]

Thanks very much for your answer, but I'm still confused. 

I downloaded the pdf you referenced and used the table A-6 and still get a number over 16k, not 12k.  It appears from this table that the math does indeed work that way.  Further, last fall I paid a CPA to look at my taxes to make sure I was doing them correctly, and according to him, the only thing I'd been doing wrong was using too small a depreciation value (turbotax had been giving me the 12k figure for years). 

Any further thoughts?  (Thanks again)

[Anonymous_ · Accepted solution]

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@tomgoldberg wrote:

Any further thoughts? 

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Yes. If you manually adjust the amount of accumulated (prior) depreciation that is calculated by TurboTax, the program will adjust the current year deduction.

[Carl]

Sounds to me like is possible you have the wrong cost basis for the structure entered into the program. Or at least, it's not the same cost basis used for figuring depreciation in the past.

[RobertB4444]

Do you have a portion of the property segregated out as "Land".  At least 10% of the value of your property should be set aside for the value of the land and the land is non-depreciable.  TurboTax may calculate this value for you when you set up the asset if you request it to do so.  That would account for a difference between the depreciation that you are expecting to see and the depreciation that you are seeing.

@tomgoldberg 

[tomgoldberg]

I never identified to Turbotax that any portion of the condo was land (don't recall it ever asked me), and I'm pretty sure that in this case, we do not own the land our condos sit on.

[Carl]

If you wern't asked for a land value, then you either entered the asset wrong, or not at all. But for now, lets assume you set it up correctly, and further assume you put in the wrong values is all.

In the Assets/Depreciation section elect to edit/update the property it self.  One of the screens has two data entry boxes on it.

COST:

COST OF LAND:

If you don't see that, then the asset has been incorrectly classified under MACRS.  But assuming you do see that, here's the details on how the program works.

COST: What you paid in full for the property, land and all. (minus of course, things like closing costs and the such.)

COST OF LAND: that portion of the amount in the COST box that is allocated to the land.

The program (not you) will subtract COST OF LAND from COST and that difference is the cost of the structure that gets depreciated over the next 27.5 years.

[Anonymous_]

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@tomgoldberg wrote:

I'm pretty sure that in this case, we do not own the land our condos sit on.

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You can be almost 100% certain as condo associations almost always own the land; there is no individual ownership of the land.