Incorrect depreciation for rental property in TT 2021

[Derek26]

@AmyC, I have found your posts to be very helpful and informative, so I am hoping that you could answer my question.

I have been using TT for over a decade, but there seems to be an error in the Schedule E worksheet for TT2021. I am an active participant in two rental properties: one of them generates income, but the other one results in a loss every year, due to depreciation.  Up until TT2021, I was able to offset the income from the first property with the loss from the second property on my Schedule E.  However, this year the loss on Schedule E is set to zero by TT, with some of the depreciation allocated to column (d) Vacation home loss limitation.  However, this is NOT a vacation home and had 0 days of personal use all year.

I am NOT a real estate professional.  The following information is filled out on the Schedule E worksheet (same as all previous years):

(C) Active participation - Y

Days of personal use: 0

According to IRS publication 527, Chapter 3, I should be able to deduct up to $25,000 of loss from this property:

Exception for Rental Real Estate With Active Participation

If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.

How do I override the incorrect deferral of depreciation on Schedule E for the second property, so that I can claim an overall loss for the year?

[AmyC · Accepted solution]

Only the desktop program can be viewed and changed. Income above $150k will limit the loss allowed but you are getting a vacation home error. You are clearly experienced and understand the entries. I wonder if something went haywire in the data transfer. Follow these steps and let's see what happens:

1. Go back to  What Type of Rental is This? and make sure vacation is not selected. 
2. Double check personal use days. 
3. Once you know the type and personal use is absolutely correct, - delete the Sch E Wks only - not the sch E!!!
   • Online: A simple way to delete forms in TurboTax online is to use the Tax Tools menu option, which is on your left menu bar when you are working in your program. Then, choose Tools and then Delete a form.
   •  Desktop: If you are working in the download TurboTax program, use the Forms Mode on your menu bar to bring up the form you want to delete, then choose the Delete Form option at the bottom of the form.
4. Log out of your return and try one or more of the following:
   • Don't use Internet Explorer.
   • Clear cache and cookies,
   • Sign in using a different browser.
   • Sign in using a different device.
5. Log back into your return.

[Derek26]

Hi @AmyC , thanks for the very detailed and helpful answer!  The options in my dialog box are slightly different, since I am using TT Premier for Mac.  After I deleted the Schedule E worksheet, the property was also deleted from the Schedule E!  I started entering the asset information again from scratch, including the itemized depreciation (for both the property and upgrades made over the years).  NOW TT calculates the net loss, as I expected.

This is a weird bug that only appeared in the TT Premier for Mac 2021 version.  I have used the Premier version for Mac for over 10 years, and this is the first time that this error happened!  I simply import the rental information from the prior year's TT file.

[AmyC]

Yes, MAC navigation is different and I am so sorry that it deleted your sch E. Here are my favorite MAC tips:

• To override on a Mac, select the field, select EDIT in the menu bar, select override. Same steps to cancel the override.
• You can use the Help Center button on the top right of the program for help with a form while in FORMS mode. Just be in the form before clicking.
• To find the Data Source, double click the field in question on the form.