Incorrect Depreciation Calculation - TT Business 2023

[kevinfifo]

Asset value $4,756. Asset life 15 years. Using MACRS SL depreciation method. Asset in year 2 of its life. TT Asset Life History report shows $317 per year depreciation - I agree. Form 4562 shows $323. Seems wrong - should be $317.

[AmeliesUncle]

What did you enter for "prior depreciation"?

Was it 100% business use both last year and this year?

[Rick19744]

Don't forget that depreciation is determined based on the quarter it was placed in service. 

While the MACRS tables also support the $317 regardless of the quarter the item was placed in service, TT may be using an actual mathematical equation to arrive at the figure, hence the $5 difference.

You would think the two would agree, but don't know how each figure was determined; two separate calculations?  We will never know.

I wouldn't get too excited over the $5 differential, however, your response to @AmeliesUncle may have some bearing.

[Carl]

Some things that matter here:

What date did you place the asset in service?

What convention did you use the first year? Mid-Quarter? Half-Year? This is what really matters.

[Rick19744]

@Carl that question was already addressed.

Regardless of when it was placed in service, 2nd year depreciation would be $317 according to the tables; 1/2 year, 1st quarter, 2nd quarter, 3rd quarter and 4th quarter.  All are 6.67% resulting in $317 depreciation.

[Carl]

I'm just wondering if "rounding" may be the cause here. But even so, a $5 difference on a single asset in it's 2nd year (which is 1st full year) seems quite a bit to me - considering the cost of the asset. Now, I have no problem with a maximum $5 difference, and for me I'd leave it alone. But a $6 difference and I want answers.
I know on my rental properties I'll see a few dollars difference, but never more than $5 and never exactly $5. Typically, $2 or $3 and that's it. I just "Let it go". Heck, on the real estate property itself I'll not give a $5 difference a 2nd thought. But $6? I'll print out the worksheets to see exactly what numbers the program is working with. 100% of the time, it's because I entered an incorrect figure somewhere.

[kevinfifo]

I agree, Rick.  Year 2-14 will all be the same.

Here's the Asset Life History TT has linked to the asset.

Here's form 4562.

There is a second 20-year asset that it does the same thing on.  Asset life history shows a different amount than form 4562.

[Carl]

I know on one of my rentals the depreciation will vary by $1 on some years. I attribute that to rounding. For example, I have depreciation of something like $3017 per year for the first say, 4 years. Then it year 5 it shows $3018. Then year's 6 -9 it shows $3017 again. This is easily attributable to rounding.

What really matters is the amount shown on the 4562 that prints in portrait format, as that is the one sent to the IRS. The 4562's that print in landscape format are not an "official" IRS document. They're just for your records and are never sent to the IRS.

Sounds to me like the math used for the portrait 4562 may not be using the same numbers as used for the other 4562's, or the math may be rounding for one, and not the other. But that's just a guess really.

[Rick19744]

I would recommend a couple of solutions:

• Call TT and ask why the supporting worksheets don't support what is being reported on the 4562. 
• Having said that, the two worksheets aren't consistent in prior year depreciation.
  • One reflects what I would expect to see; $159
  • The other shows 1/2 of what you would expect to see; $159 / 2 = $79
  • So this tells me something is not consistent internally and this is leading to this mathematical inconsistency

[AmeliesUncle]

As Rick pointed out, the problem is that you reported $79 for the prior depreciation, which is likely wrong unless it was less than 100% business use last year.

TurboTax is correctly calculating $323 based on a $79 of prior depreciation.  

Where did the $79 come from?

[kevinfifo]

The method is SL/MM and it was put into service 10/1/22. Therefore, depreciation for 2022 is 3/12 times $4,756/15 = $79.27. Prior year depreciation has nothing to do with current year in the straight line method. IRS tables show 6.67% for year 2 of a 15-year depreciation. .0667*$4,756 = $317.23. I tried recreating the asset using a manual method and choosing an asset class that has a 15-year depreciation and I got the exact same result - Asset Life History report is correct but the asset entry worksheet is incorrect. Going to call TT. Will report on the results.

[Rick19744]

Follow-up comments:

• The screen shot for prior year depreciation reflects SL/HY
• Assuming this is correct, and mid-quarter does not apply, the table percentage is 3.33 for the initial year placed in service.
• When you do the math, the result is $158; 4,756 x 3.33% = 158
• Your calculation at arriving at $79 is not correct.  Half-year convention is used for almost all property except residential rental property and nonresidential real property (assuming mid-quarter does not come into play).  That is why your 4562 reflects SL/HY.
• For this property, since mid-quarter does not appear to apply, you need to use 1/2 year convention
• So for the first year placed in service the calculation is $4,756 / 15 = $317 then divided by 2 (for half year convention) = 159
• So there is $1 rounding, but that is normal.
• So in summary, your prior year depreciation of $79 is not correct based on HY convention.

[AmeliesUncle]

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@kevinfifo wrote:
Therefore, depreciation for 2022 is 3/12 times $4,756/15 = $79.27.

Prior year depreciation has nothing to do with current year in the straight line method. IRS tables 

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Did you do it manually last year?  As Rick pointed out, your method for calculating the first year is wrong.

That is also wrong.  TurboTax does not use the 'tables'.  It uses the mathematical method (without the 'tables') for calculating depreciation, and using that method the prior depreciation DOES affect the current year.

So it is your miscalculation of the prior year that is messing up the current year.

[kevinfifo]

I figured out how Turbotax is thinking, anyway.  Support was not much help and I never got the callback they promised.

$4,756 over 15 years is $317 per year.  In year 1 (not using turbotax) I calculated a $79 depreciation for 3 months.  Using half year that should have been $159 or mid-quarter it would be $92, so my mistake.

Turbotax, using the half year method, took $4,756 - $79 = $4,677 and divided it by the remaining 14.5 years to get $322.55 per year, rounded up to $323.

So, you just have to think like Turbotax and it makes perfect sense.  Thanks to all for the feedback.  Your comments gave me clues about where to look and how to test.

[AmeliesUncle]

That is correct.

However, if you took less depreciation that you should have last year, you need to enter the amount of depreciation that you SHOULD have taken.  So when it asks for "prior depreciation", you need to enter $159 (assuming it should have used the Half-Year convention; if it was required to use the Mid-Quarter Convention then you use that amount).