Fix rental cost basis without changing prior year depreciation

[michash2998]

On AC, does it mean I should add it as another asset for 27.5 year depreciation so it will included in adjusted basis?

for the water heater, the certification cost is to hire plumber and chimney company to come in to do fixes and bring the installation up to building code standard.  Can I expense this cost as part of the rental maintenance/repair cost against rental income in 2022?

thanks

[tagteam · Accepted solution]

You can add the A/C unit as (27.5-year) asset. Personally, I would not bother with depreciation since you placed the unit in service and sold it within the same tax year. It should absolutely be added to your adjusted basis, however.

The other expense can be written off as a repair or maintenance.

[michash2998]

I like simple.  Can you please show me how to add to adjusted basis in TurboTax? Thanks 

[tagteam · Accepted solution]

Have you been using TurboTax since you bought the property? 

You can either add the cost of the unit to the basis of your building (manually) or add it as an asset in the program.

Regardless, you will not have to be concerned about the procedure at this time since TurboTax for the 2022 tax year has not yet been released. 

I recommend that you use a desktop version of TurboTax if you are planning to prepare your return yourself. However, if you think you may need assistance with preparing your return, you might consider using an online version of TurboTax and selecting the Live or Full Service option.

[michash2998]

I have been using TurboTax for years. I didn’t know I can manually update the cost basis instead of adding asset.  I will do that when 2022 version comes up.  Really thanks for your help.  You are the best!

[Carl]

I didn’t know I can manually update the cost basis instead of adding asset.

If you change the cost basis of an existing asset, you *WILL* completely screw up the depreciation history, present and future depreciation. Under no circumstances and with no exceptions should you ever change the cost basis of an existing asset. There are no exceptions.

[michash2998]

The reply from tagteam above said “You can either add the cost of the unit to the basis of your building (manually)”.  This seems contradictory to what Carl just replied that change cost will completely screw up depreciation history.  I am confused.  What is the right thing to do?

[Carl]

If you change the cost basis of "any" depreciable asset, the program "not you", will refigure past, present and future depreciation based on the cost basis you change it to.  Therefore, all prior years depreciation will be changed and will most likely result in an audit 24-36 months after you file, and you will lose on the audit.

This is something that you can test for youself if you want, using either the online or the desktop version. Change the cost basis, and it all gets skewed.

[michash2998]

Ok, I will enter as an asset to depreciate instead.  Thanks for clarifying.

[tagteam · Accepted solution]

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@michash2998 wrote:

Ok, I will enter as an asset to depreciate instead.  Thanks for clarifying.

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What I meant was you can add the asset manually to the cost basis of the property. 

In order to do so, you would have to be using a desktop version of TurboTax. I know for a fact that this works because I have done it on over a dozen test returns. It will not "screw up" the depreciation of the primary asset if it is done correctly (using Forms Mode).

Regardless, you are probably better off just adding it as an asset since it is a much simpler process.