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zhiqi
New Member

How to add exact money of rental property depreciation ?

 
4 Replies
AliciaP
New Member

How to add exact money of rental property depreciation ?

Depreciable basis : Generally, depreciation on your rental property is the based on the original cost of the rental asset less the value of the land (because land is not depreciable). The original cost can include various expenses related to the purchase of the property. If you make a capital improvement to the rental property, you will depreciate it using the same useful life of the underlying property. If you don't know the original house and land separate costs, you can use the percentage of house and land to total value listed on your property tax bill to allocate the original cost.

So for example, if you bought a rental property (house and lot) for $148,000, had capitalized purchasing expenses of $2,000 and the cost allocated to the land part of the purchase was $50,000, then your depreciable basis in your rental property is $100,000 ($148,000 + $2,000 - $50,000).

Residential real estate is depreciated over a 27.5 year life on a straight-line basis and used a mid-month conversion (this means that for the month placed in service, no matter what day during the month, you will only get a half of month worth of depreciation for this first month).

Click for more information about depreciation on rental property

    You need to enter your rental property as an asset under the asset section of rental properties.

    To enter this transaction in TurboTax, log into your tax return and type "rental (schedule e)" in the search bar then select "jump to rental (schedule e)", TurboTax will guide you in entering this information

    Alternatively, To enter this transaction in TurboTax Online or Desktop, please follow these steps:

    1. Once you are in your tax return, click on the “Federal Taxes” tab ("Business" tab in TurboTax Home & Business)
    2. Next click on “Wages & Income” ("Business Income and Expense" in TurboTax Home & Business)
    3. Next click on “I’ll choose what I work on”
    4. Scroll down the screen until to come to the section “Rental Properties and Royalties”
    5. Choose “Rental Properties and Royalties” and select “start’ (or “update” is you have already worked on this section)

    Enter your rental property information through the TurboTax guided questions (or choose edit rental property if property is already listed) until you come to a screen that is titled, Your "rental property name" rental summary. You will enter your rental property house here under "assets/depreciation" 

    • Under the asset/depreciation section - select start
      • Select "yes" to "Do you have assets for this property that can be depreciated?
      • About 3 screens in, you will enter the house as an asset here. This is where your enter all your rental assets (including capital improvements) 
      • For the rental house (or any capital improvements), you will select  "Rental real estate property"
      • Then for the rental house, select "Residential Rental Real Estate"
      • On the next screen, you will enter information about your Rental property asset including:
        • Property description - usually street address (type of capital improvement)
        • Cost - generally what you paid (if this is a conversion of your primary residence, then you would use the lesser of FMV at time of conversion or cost.)
        • Cost of Land - If cost, as listed above, includes land, put the total amount of land cost here (land is not a depreciable asset)
        • Date purchased or acquired - this is the original date of purchase or acquisition of the rental house.
      • On the next screen report purchased new or sold in current year and your business use of the property since acquisition.
      • You will then get a screen that will confirm prior year deprecation (If asset is over one year old) Just remember that the IRS assumes that you have taken the correct amount of deprecation on your rental asset regardless of if you did or did not). If you change this amount, TurboTax will calculate a new straight line depreciation amount using the new basis information (cost less prior year depreciation) over the assets remaining life.
      • On screen titled "special handling required?" - select "no"
      • Then you will get an asset summary page showing current year's deprecation. If you select show detail you can review your entry details 
      • You can add additional rental assets on the next screen by selecting "add an asset" 


    Here is a link that can provide you with helpful information related to your rental property 

    TurboTax - Tips on Real Estate Taxes and Real Property 

    JR0520
    New Member

    How to add exact money of rental property depreciation ?

    Hello, i entered the information for my residential rental property exactly as shown by turbotax but the software keeps placing the SL depreciation over 39 years instead of 27.5 years. Please help me correct this problem.

    AmeliesUncle
    Level 13

    How to add exact money of rental property depreciation ?


    @JR0520 wrote:

    Hello, i entered the information for my residential rental property exactly as shown by turbotax but the software keeps placing the SL depreciation over 39 years instead of 27.5 years. Please help me correct this problem.


     

    Is the property in the United States?  When was it "placed in service"?

     

    Are you reporting this in the rental section?  Or are you entering it in the business section?

     

    Double check that you entered that it is Residential property (rather than commercial or something else).

    Carl
    Level 15

    How to add exact money of rental property depreciation ?

    @JR0520 your post is an "add on" to a thread you did not start. This has a high tendancy to confuse the reader without the reader even realizing it. Then the information they provide you has an extremely high probability of being flat out wrong *FOR YOUR SPECIFIC AND EXPLICIT SITUATION*. In the futre, start your own message thread for any help you need, and this will significantly decrease the probability of you being provided the wrong information.

    the software keeps placing the SL depreciation over 39 years instead of 27.5 years.

    That indicates that most likely you are *not* completing a SCH E, and instead you are completing a SCH C which is not correct for rental property. Since you are not the one who started this thread, I have no way of knowing what specific version and flavor of TurboTax you are using. So can only provide general guidance.

     - First, you need to delete the SCH C entirely. To do that, go into Business Income & Expenses (SCH C) and if asked if you'd like to edit/update your business information, say *YES*. There you will see a business listed with an EDIT and DELETE button next to it. Click the DELETE button to delete the SCH C and press on.

    Next, elect to edit/update Rental & Royalty Income (SCH E) and work that section through to enter your rental property.

    If this is your first year dealing with rental property, or your first year using TurboTax with rental property, understand that absolute and total perfection is not an option. It's a must. Even the tiniest of mistakes *WILL* grow exponentially over time. Then when you catch the mistake years down the road the cost of fixing it will be expensive. The below information is provided in the hopes it helps you achieve that absolute perfection. So if you have further questions please start your own thread and ask.

    Rental Property Dates & Numbers That Matter.

    Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out.
    In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
    Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
    Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
    Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

    RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

    Property Improvement.

    Property improvements are expenses you incur that “better” the property. Basically, they retain or add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

    To be classified as a property improvement, two criteria must be met:

    1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

    2) The improvement must retain or add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

    There are rules that allow you to just flat-out expense and deduct some property improvements, if the total cost of the improvement was less than $2,500. It’s referred to as “safe harbor di-minimis” But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.

    Cleaning & Maintenance

    Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

    Repair

    Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

    Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

    However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

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