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Level 1

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

No matter how I arrange the numbers I can't get what TT gives me.  It's within $50, but I would expect an exact match.
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Level 10

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

Table A-6 is on page 72 of Publication 946.  See the attached link:

https://www.irs.gov/pub/irs-pdf/p946.pdf

If you notice the property is depreciation based on the month placed in service and using a mid-month convention.  If you did not use the correct month, your calculation could easily be $50 off when attempting to recalculate.

*A reminder that posts in a forum such as this do not constitute tax advice.*

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Level 15

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

we can't see your return.  if acquired in 2019, even in January, you don't get a full year's depreciation.   

if other than 2019 the depreciation should not vary by $50 unless the property cost was like $5,000,000. TT may be using the tables in IRS PUB 946 and there are slight variations from year to year in the %'s

you could contact support to review the TT calc. 

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Level 15

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

Residential rental real estate is depreciated per IRS Pub 946 using the worksheet on page 38, and table A-6. Remember, the value of the land is *NOT* depreciated. Only the value of the structure. In the turbo tax program,

COST: the total amount you paid for the property. Every single penny.

COST OF LAND: The amount already included in COST, that is allocated to the land.

The difference between the two is the value of the structure on that land, and that is the amount depreciated over 27.5 years as directed by IRS Publication 946.

It works perfect. If you're getting wrong numbers, there's two possibilities of why.

1. When asked for percentage of business use, the business use percentage is ONE HUNDRED PERCENT. Even if you placed the property in service on Dec 31 of the tax year, the business use percentage is till 100%. It's asking what percentage of time ***AFTER*** you converted it to a rental, was it used for business. That's ONE HUNDRED PERCENT.

2. Personal use days. This will be ZERO. After you converted the property to a rental, you used it ZERO DAYS for personal use. What you used it for before converting it to a rental does not count for anything.

3. Days rented. The day count starts on the first day a renter "COULD" have moved in. This is generally the day you put the FOR RENT sign in the front yard. Doesn't matter if it took you three months after that to actually get a renter physically in there.

So if a renter "could" have moved in on July 1st, but you didn't actually get a renter in there until Dec 1st, your days rented is 182 days. Days of personal use is ZERO.

 

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Level 10

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

Table A-6 is on page 72 of Publication 946.  See the attached link:

https://www.irs.gov/pub/irs-pdf/p946.pdf

If you notice the property is depreciation based on the month placed in service and using a mid-month convention.  If you did not use the correct month, your calculation could easily be $50 off when attempting to recalculate.

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

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Level 1

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

Specifics:

 

Cost:  330,000

Land:  44,137

Business % 100.00

Prior Deprec (is this relevant?)

 

I'd expect the result to be (330,000-44,137) / 27.5 = 

10,395.

 

TT tells me it's 10,381.  

This isn't the first year in service, and I've been renting it 100% of the time (as described above).  Maybe prior depreciation enters the calculation somehow?  If so, why?

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Level 10

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

Yes, the prior depreciation affects the calculation.  If you leave it BLANK, the program will automatically assume you took the correct prior depreciation in prior years.

 

TurboTax uses the mathematical method of depreciation and does NOT use the 'tables'.  The mathematical method involves the "prior depreciation".  In some cases, that calculation will vary by a tiny bit from the 'tables'.

 

So if you are entering an amount in the "prior depreciation", you will want to verify that was the actual amount you took.  If you somehow accidentally took a little bit too much in prior years, that would be why TurboTax calculates that different amount. 

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Level 1

How does TT calculate depreciation? I entered the cost and land and expect depreciation to be (cost-land)/27.5. However, TT reports a little less.

Thanks!  Prior depreciation was automatically filled in, maybe I tinkered with it in last year's return to see how it impacted the calculation.  I'll try leaving it blank.