How to input rental STRUCTURE asset

[ZQI]

Hi,

We have been using CPAs for 10 years but there is a change this year so we are using TurboTax this year ourselves. 

I have prior year tax returns, and am trying to setup rental depreciation in TurboTax. I can see the depreciation of the land is over 27.5 year

Basic question, in TurboTax Desktop, how do I input the STRUCTURE part?

I watched a video: https://youtu.be/UiW_Bfx7co0, and followed through "Property Profile" but there is no place for me to input total price, land price etc. as shown in the video around 11:59. 
Are we supposed to input STRUCTURE in below "Assets/Depreciation" section?

Another question is my CPA has "LESS EXCLUSION" items in prior year returns. I can't understand why he put there. Of course can't ask him now since we are not using his service. 

Appreciate your help in advance.

Regards,

ZQI

[PatriciaV]

Enter each asset according to the prior schedule so the depreciation calculations are consistent with prior years.

Land is not depreciated. You can enter this in TurboTax as Land to track the original cost.

The "structure" should be the residence itself and is called Residential Real Estate Property in TurboTax. This asset is depreciated over 27.5 years in total. The remodel and renovation are called Improvements in TurboTax.

It's possible the "Less Exclusion" lines reflect an adjustment for personal use of the asset. You won't know for sure without contacting the prior tax preparer. (Questions about your tax return should be covered, even though you aren't using their services this year.)

Be sure you add both lines in the Ending Accumulated Depreciation column for each asset when entering "prior depreciation" in TurboTax. 

The yard door and closet door appear to be fully depreciated. You don't need to enter them into TurboTax unless you want to keep the historical information. These two items would be entered as rental property furnishings.

For more help, see: How do I handle capital improvements and depreciation for my rental?

[ZQI]

Thanks @PatriciaV for your quick response.

"The remodel and renovation are called Improvements in TurboTax." I see there are 3 types of assets in TurboTax:

- Residential Rental Real Estate

- Appliances, carpet, furniture

- Land improvements

The remodeling are interior, involving flooring, painting, bathroom, windows etc. The 'Land improvements' seems only include external changes like fence, yard, roofing etc.  I used "Residential Rental Real Estate" for my house itself. What shall I use for remodeling/renovation?

Also, I am facing an issue to align TurboTax depreciation with my previous CPA result.

TurboTax computes the same annual depreciation of $6364. But it starts in the year we rented it out (1/2020) hence ends in 2047. But our CPA put it start at 10/2013 when we purchased the house, and hence will end at 2040. 

Between my CPA and TurboTax, which one is correct? Does the depreciation start right after we purchased the house in 2013, or only when we rented it out in 2020? 

It seems CPA is right based on my research. If so, how to tell TurboTax to recognize the starting date?

House total		$             583,110
Land		$             408,100
Structure		$             175,010
Life		27.5
Annual Depreciation	Structure/Life	$                 6,364

Thank you!

[ZQI]

'It's possible the "Less Exclusion" lines reflect an adjustment for personal use of the asset. You won't know for sure without contacting the prior tax preparer. (Questions about your tax return should be covered, even though you aren't using their services this year.)'

BTW, this is genius @PatriciaV . We did rent one room out using AirBnb starting in 2013, but it was on and off. So maybe this was the cost adjustment was for. And also, maybe that's why CPA started the depreciation in 2013 right away.

How do I make TurboTax to recognize this?

[ZQI]

It's possible the "Less Exclusion" lines reflect an adjustment for personal use of the asset. 

How to I input "Less Exclusion" items in TurboTax in the depreciation table above?

I tried to add another asset with cost of -18666, TurboTax does not allow it saying cost can't be negative.

Anyone run into this situation?

[DianeW777]

The improvements/remodel/renovations (flooring, painting, bathroom, windows etc) use the same designation as the home itself, Rental Real Estate Property.  They receive the same 27.5 year recovery period as the residence.

The correct dates are date of purchase or acquired and then the date you began renting which is January 2020. Depreciation begins on the date you placed it in service for rent and not the date you acquired it. Currently, it is appropriate to enter the correct dates since it will correct the prior depreciation as it should.  As far as your statement below you are correct.  My advice would be to continue to use the 2020 starting date, however you need to track the depreciation used in the past for the Airbnb (accumulated total) as you will need this when you sell the residence in the future.  This amount would be added to the total depreciation used on your returns in the year of sale.  You didn't use full annual depreciation during those years.

• 'We did rent one room out using Airbnb starting in 2013, but it was on and off. So maybe this was the cost adjustment was for. And also, maybe that's why CPA started the depreciation in 2013 right away.'

Again, this will be a manual tracking piece for a future sale.  Keep the information with each current year tax return and it can be a copy of the 2019 tax return which should have the total depreciation used prior to the full residence rental in 2020.

                                   

@ZQI 

[ZQI]

Thanks for your advice @DianeW777.

I found for the STRUCTURE, in fact CPA has been actually reporting the depreciation value of $6364 which was as if the whole house was rented out (first month was prorated). Which was why a big passive loss carryover over the years.

Now, if I change the start date from 2013 to 2020, the annual depreciation will be smaller as it will be another 27.5 years instead of remaining 17.5 years from starting on 2013 as CPA did.

What are the pros/cons?

If I just keep the starting date as 2013, it means my depreciation will end earlier in 2040. My depreciation will be converted as passive activity loss carryover? What do I lose if we sell house before and after 2040?

Amending the previous returns seems too complex for us. 

Thanks!

ZQI

[DianeW777 · Accepted solution]

Yes, you should keep the 2013 date in place for now since it has been set up on depreciation from that date.  As indicated keep the actual depreciation figure you used for the Airbnb portion until you sell.  At that time, you will use the true depreciation claimed in all years.  The passive loss carryovers will be used up in the year of sale as well.  In other words you will reduce your income in the year of sale by the combined total of any passive loss carryover amount.

You will recapture any depreciation used up to the amount of gain on the sale at that time. Any gain in excess of that amount will be taxed at the capital gains tax rates at that time.

@ZQI