How can I ensure the depreciation is prorated to my percentage ownership?

[Herve5]

I own 50% of a rental.

I selected Turbotax to calculate my share of expense/income, and enter the full amounts.

Turbotax calcuates 50% on the income/expenses, but does not prorate depreciation expense on Schedule E line 18. 

If I manually overwrite by dividing by 2, Turbotax mentions I cannot file electronically if I overwrite.

How can I ensure the depreciation is prorated to my percentage ownership?

Thank you!!

@DianeW777 

[Anonymous_ · Accepted solution]

Just enter your percentage of ownership of the asset in the Depreciation section.

[Mike9241]

@Anonymous_ do they need a partnership return? 

[Carl]

One thing I've discovered over the years, is that when you have less than 100% ownership of a rental and you elect to let the program "do the split" for you, it doesn't split everything. I find it simpler to just report only your percentage of everything and claim 100% ownership of that percentage.

For example, if you own 50% of a $100,000 rental property, you enter $50,000 as your cost basis with 100% ownership. You also enter only 50% of the rental income and expenses.

Depending on the relationship of the owners, it may make more sense to file a 1065 partnership return and issue each owner a K-1 for their percentage/share. Especially if it's not an even split, or if there's more than two owners that are not married to each other and filing a joint return. It makes one's tax life a lot easier when things happen, such as one of the owners selling their share, or dying.

[Carl]

As for ensuring depreciation is right, it's probably not. The program "can" figure it correctly. But you have to "know" where the problem is. Basically, as you work through the asset there's a screen that ask you for percentage of time it was rented. For a situation where you have less than 100% ownership, do not enter percentage of time. Instead, enter percentage of ownership. Then, assuming all other data has been entered correctly, the depreciation will be correct. I assume you are using the worksheet on page 37 of IRS Publication 946 to manually figure the depreciation to confirm the program has it right.

[Anonymous_]

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@Mike9241 wrote:

@Anonymous_ do they need a partnership return? 

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Per Section § 301.7701-1(a)(2):

....mere co-ownership of property that is maintained, kept in repair, and rented or leased does not constitute a separate entity for federal tax purposes.

[Anonymous_]

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@Carl wrote:

For a situation where you have less than 100% ownership, do not enter percentage of time. Instead, enter percentage of ownership.

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Users should follow the guidance in TurboTax which is a rather simple calculation (as stated in the example in the Guidance box).

.....enter only the amounts that pertain to your percentage of ownership of the assets. For example, if you owned 25% of an asset you purchased for $100,000, you would enter $25,000 as the cost of the asset.

[Anonymous_]

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@Carl wrote:

......it may make more sense to file a 1065 partnership return and issue each owner a K-1 for their percentage/share....

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It also may not make more sense since, for one, forming a partnership increases the compliance burden since doing so entails filing another federal income tax return as well as a state income tax return (in most states).

There are other considerations that militate against forming a partnership for this purpose. Note, for example, that an interest in a partnership is personal property even if the only asset the partnership owns is real property.