How can I elect to depreciate my rental property using ADS depreciation as opposed to GDS?

[rchan389]

I would like to depreciate my rental property using the ADS method of 40 years. I was told to override the depreciation type on the Asset Worksheet (Line 45) and change it to ACRS, update Asset Class to R, and change recovery period to 40 years. However, when I change all of this, Turbo Tax calculates depreciation expense of $0. The depreciation expense should not be zero. How can I change this?

[view2]

Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986.                      

Electing ADS

If you choose, you can use the ADS method for most property. Under ADS, you use the straight line method of depreciation.

The election of ADS for one item in a class of property generally applies to all property in that class placed in service during the tax year of the election. However, the election applies on a property-by-property basis for residential rental property and nonresidential real property.

If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Once you make this election, you can never revoke it.

For property placed in service during 2016, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c.   

YOU can really make a mess of your tax return by editing a worksheet.Most are interlinked and must be entered from the originating point.  

Use the "I choose what I work on" in the interview and at the asset select other and then you can choose ADS.   

[lkoatkinson]

I cannot figure out where to make this election on the 2020 TurboTax.

[Mike9241]

line 45 depreciation type MACRS (acrs is no longer an acceptable method. the last year it could be used was 1986)  s/b automatic

line 46 if asset class is residential then it should be R commercial would be NR s/b automatic (based on type on line 5)

line 47 select ALT (TT evidently does not use ADS) it may be in red but should not show up as an error

line 48 MACRS convention MM (mid-month also automatic)

line 49 ignore

line 50 s/b 30 years also automatic. you can not use 40  years for residential real estate (but see below) only for commercial real estate. 

40 years would apply to residential real estate if place in service before 1/1/18 but you would have had to have made the ADS election in the year placed into service 

by the way 30 years for Residential is 3.333333% per full year whereas normal MACRS is 27.5 years 3.636363%.  

 40 years for commercial is 2.5 % per full year whereas normal MACRS is 39 years 2.564103%

just pointing out that the difference in depreciation deductions is small  MACRS (actually the GDS system)  vs ADS.  however, the choice is yours. 

[Carl]

Assuming your property was placed in service in 2020, 40 years is just flat out not an option with either GDS or ADS. If using GDS, it's 27.5 years. If using ADS it's 30 years. Again, 40 years is no longer an option.

See IRS Publication 527 page 9 at https://www.irs.gov/pub/irs-pdf/p527.pdf

Take note that whatever method you use, then you must use the same method and depreciation period for all assets in the same class.

Finally, note that your selection must be in the first year the property is placed in service, and you can not change it later.

[Carl]

Followup:

For ADS you'll select "Other Asset Type" which allows you to enter/select the correct items for a 30 year ADS recovery period. If you go into forms mode and make changes, then you will not be able to e-file.