Incorrect depreciation on foreign property

[Steve_tt]

I have foreign property in service from 2015. The life is estimated at 40 years since it is International. The basis is 119,818. The depreciation should be 2995 (2.5%) using SL MM method. Instead turbo tax is telling my depreciation is 3035. Any idea why this is happening? My prior accumulated depreciation is 14975.

[ColeenD3]

While this may not be the answer, real property can vary slight from year to year, based on the month it was placed in service. 27.5 year property can be either 3.636% or 3.637% in any given year. There is no table for 40 year foreign property.

Mid-month convention.

A mid-month convention is used for all residential rental property and nonresidential real property. Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month.

[AmeliesUncle]

---

@Steve_tt wrote:

My prior accumulated depreciation is 14975.

---

That number is wrong, and that is why it is messing up the depreciation calculation.  That number seems to be missing the amount of depreciation from 2015.

If you were to leave the "prior depreciation" blank, the program will automatically assume you took the proper depreciation, and it should give you the correct result.

[Steve_tt]

isn’t foreign property 40 years? 27 is only for us. I am using the online version 

[AmeliesUncle]

---

@Steve_tt wrote:

isn’t foreign property 40 years? 27 is only for us. I am using the online version 

---

40 years is correct.  However, see my other comment about the "prior depreciation" being wrong.

[Steve_tt]

If I remove that it is now showing $3469, which is still wrong.

[AmeliesUncle]

What is the exact "placed in service" date that you entered into TurboTax?

[Rick19744]

I agree that $2,995 is correct for the depreciation as the rate for 40 year property years 2-40 is 2.5%.

But I also agree that your accumulated depreciation seems to be excluding the initial year of 2015, as depreciation for years 2016 through 2020 equals $14,975.

Adjusting your accumulated depreciation may fix this small discrepancy.  

[Rick19744]

@ColeenD3 there is a table for 40 year property in revenue procedure 87-57 table 13.

[Steve_tt]

Date is 

07/12/2015

@ColeenD3 After I adjusted to the said amount it is still $3035.

Thanks!

[AmeliesUncle]

---

@Steve_tt wrote:

Date is 

07/12/2015

---

It looks like that your "prior depreciation" is $16,348.

[Steve_tt]

Thanks, setting the value to 16350 is solving the issue. But my 2020 returns show I have accumulated depreciation of 14975, I did it with a tax consultant for 2020, which value do I use? I went and looked at the old returns it appears he may not have calculated it for me during the first year of service.

My other question with the year of service, It was put in service in 7/2015 so should the numbers for 2015 returns show (2995+(2995/12*5)) My returns only show 2995.

[DaveF1006 · Accepted solution]

Yes, it looks like $2995 is for a full year of depreciation.  However, if it was placed in service  July, then you will need to depreciate from July 15 since all foreign property is depreciated using the mid-month convention. You would need to use the days remaining in 2015/total number of days in 2015. In this case, 169/365 (not sure if 365 or 366 days in 2015). So in this example (169/365)($2995)=$1387.

Whatever the partial depreciation is in 2015, this will be added to $14,975 to get the true total depreciation amount that has accumulated since you placed your foreign property in service. 

@Steve_tt

[ Edited 03/09/22|10:48 AM PST]

[AmeliesUncle]

---

@DaveF1006 wrote:

Assuming if you put this in service on 07/01/2015, only six months of depreciation should be claimed in 2015 thus $2995/2=$1497. 

However, if it was placed in service in  the 10 of July, then the calculation becomes trickier because you would need to use the days remaining in 2015/total number of days in 2015. in this case, 174/365 (not sure if 365 or 366 days in 2015). So in this example (174/365)($2995)=$1427. 

---

No, real estate uses the mid-month convention.  That means that July gets a 1/2 month of depreciation, regardless of which day in July it was "placed in service".

[Rick19744]

@Steve_tt you need to use the $16,350 (close enough to the $16,348 table calculation - rounding).

The depreciation rules are allowed or allowable.  If you did not take the depreciation in the first year, you still need to treat it as if it was taken. 

I also agree with @AmeliesUncle in that regardless of what date in the month it was placed in service, you will use mid-month.