Incorrect Prior Depreciation Changes This Year's Depreciation

[gpmorton]

For this year I am doing my taxes with TurboTax, but they were done by an accountant in prior years.  For a rental property, the accumulated depreciation is too high, but the error was made farther back than the accountant has records for.   My accountant told me to just continue to deduct the 1/27.5th of the value of the unit, but not more than the total value.  But when I enter the incorrect/higher amount for the accumulated depreciation, TurboTax comes up with a lower number for the depreciation for this year.  I think it is trying to take the remaining depreciation and divide it evenly over the remaining time period?  Is that correct?  If If I want to take the normal amount, is there any way to override that in TurboTax?  I could not find one.  The error was made many (>5?) years ago.  In recent years the deduction has been correct. 

Thanks,

GP Morton

[TaxGuyBill · Accepted solution]

Yes, that is what TurboTax is doing.  It is probably correct.

TurboTax uses the Mathematical Method of depreciation, rather than using the Depreciation Tables.  Using the Mathematical Method, it gradually 'pays back' the incorrect prior depreciation that was too high.  A similar result happens when there is a change is in percentage of business use.

I say that it is "probably" correct because once you start using the Depreciation Tables, you are supposed to keep using them, and not switch to the Mathematical way.  I would strongly guess that most software uses the Mathematical Method.  However, generally nobody really knows what method they started using, so the IRS probably won't raise a fuss over using the Mathematical Method.

Personally, I would just leave it the way TurboTax is doing it.  If you do want to override, you need to use the CD/downloaded version of TurboTax.  You can not override with the Online version.

[agoodgirllov]

I can't override it on the CD/Downloaded version of Turbo Tax and this bug will cause me to have to file my 2015 return by hand, I want a refund.

[agoodgirllov]

The problem is that the depreciation schedule was changed from the grandfathered 5 years to the new 7 years.  In the world of taxes, once you use a particular depreciation schedule, it MUST be adhered to until the item is completely depreciated.  It is illegal to switch depreciation schedules mid course without adjusting all prior years which can cause you to have to pay penalty and interest on all prior years.  This is an issue that MUST have an override button.

[TaxGuyBill]

What type of asset is it, what is it used for, when was it placed in service and what type of business is it?