Depreciation recapture due to energy efficiency rebate on HVAC equipment

[midtowncpa]

A new HVAC system for a property rental business was purchased for $40,000, placed in service in 2023, and bonus/ special depreciation and regular depreciation was expensed in 2023. In 2024, a $10,000 energy efficiency rebate was received. According to IRS guidance, energy efficiency rebates should adjust the cost basis of the asset. The rental business income and expenses will be reported on Schedule E. How do I enter this adjust the cost basis for this asset in Turbotax so that the depreciation recapture is calculated correctly for both bonus/ special and regular depreciation?

Details:

Cost basis: $40,000

1st year bonus/ special depreciation @80%: $32000

1st year regular depreciation (200DB/ mid quarter convention) @5%: $400

Remaining basis at end of 2023: $7600

Section 179 deduction: 0

[PatriciaV]

Please clarify what was the remaining basis in the HVAC system at the end of 2023. How much special depreciation did you claim and how much was the Section 179 deduction?

[midtowncpa]

I added the requested info at the bottom of the original post. Thank you.

[RobertB4444]

The energy efficiency credit adjusted your basis to below the amount of bonus depreciation for 2023.  The easiest path for you is to go back and amend the 2023 return to reflect the reduced basis and redo all of the depreciation numbers.  

@midtowncpa 

[midtowncpa]

Thanks for the suggestion. Unfortunately, that is not the optimal tax treatment for our situation given the difference in tax bracket between 2023 and 2024 and the consequent impact on actual tax paid. 

We know what to do tax wise (i.e. recapture depreciation). We still need guidance on how to do it in TurboTax. If the answer is it can’t be done in TurboTax, that would be helpful to know too.