Rental property depreciation not calculating correctly

[crosent344]

I can't figure out why the current year depreciation amount for my rental property will not calculate as i expect.  Last year I had a tax service do my taxes, so I have the Depreciation Detail Listing worksheet from them.  It has all the relevant info needed, including date in service, building cost basis (no land), business percentage, lifecycle, rate, prior depr, current depr, etc.

When I plug these values into TT, it calculates a value way higher than I believe it should be for the depr expense for the 2023 tax year.

Date in service 4/1/2004, Cost basis $43867, SL 27.5 yrs, accumulated depr=$16083. current year $1595.

I am expecting current year to be the $1595 (43867 basis / 27.5yrs = 1595), but it appears TT is using the accumulated depr amount to get the current year depreciation.  If I raise the accumulated depr dollar amount in TT, it will adjust the current year depreciation amount.  I can't find another way to get the calculation to come out correctly, any ideas?  When I go back and look at prior year tax statements (from tax preparer service), the current year depr value is always the $1595 value.  There were some years between 2004 and present where I lived in the unit and it was not depreciated as rental.  Now it has been rental again for a few years.

[Carl]

The below statement jumps out at me:

There were some years between 2004 and present where I lived in the unit and it was not depreciated as rental.
Are you saying you have some years where it was still classified as a rental with less than 100% business use for each of those years? Or are you saying there are years where you lived in it for personal use for the entire tax year, and did "NOT" report it on SCH E since it would not have been a rental for even one day in that tax year?
I ask, because when you have tax years with varying percentage of business use, or varying percentages of personal use, that will change the allowed depreciation for that tax year. That can "and will" throw things off. In my testing with the TTX program a few years ago (maybe 2 years ago) the program flat out was not able to handle it correctly.

[crosent344]

When the property was being used as personal, no depreciation expense was deducted.  In years where the business and personal was split, they used an adjusted depreciation amount that reflected only the months it was rental property.  In years where the property was rented 100% all year, the full $1595 depreciation expense was deducted.  I want to do that again this year, use the full depreciation amount because it has been rented all year.

[Carl]

As I see it, things appear to me that the program just flat out can not correctly handle your situation. Another thing to, is you "seem" to indicate that you did have at least one full tax year where the property was never rented, or even advertised for rent. If so, the correct thing would have been to convert the property back to personal use. When converted back to rental again, you'd start depreciation all over from year 1 using the adjusted cost basis of the structure only, to account for depreciation already taken in prior years when it was a rental.

[crosent344]

So I went and entered my rental info in efile.com, and guess what, it asks for date of service, cost basis (less land), and accumulated depreciation.  It also has a box to check if you want SL 27.5, AND to use equal yearly amounts of depreciation.  I selected this, and wow it calculated the depreciation perfectly.  Floors me that Turbotax can't figure this out.  I've been looking at the forms in TT and can't find any way whatsoever to adjust to get the calcs correct.

[Rick19744]

The issue here is that with the efile.com, you apparently have the ability to tell it to use equal yearly amounts.

When TT computes the depreciation it does not use tables.

It is assuming that depreciation was taken each year since placed in service and is expecting accumulated depreciation different than was input; expecting accumulated depreciation to be much higher.

TT has no way of knowing that some years there was no depreciation taken.

It just sees what it believes to be an incorrect accumulated depreciation and computes an amount.

[crosent344]

Yeah, that's basically what I was saying in my last comment.  My hope is that someone from TT development will see this and introduce an enhancement to the product.  

At a minimum, let user change /override the yearly depreciation amount in the form...

One could argue why TT even asks user for accumulated depreciation amount if they are going to just use their table/calc value anyway....

I did find that if I change the accumulated depreciation amount, the calculated yearly depreciation value does go up or down.  I can get the right depreciation value in there by manipulating the accumulated value, but that's not a solution either because then that is incorrect.

[cchat]

I have the same issue and followed this promising answer without success.  I cannot get the numbers to match what my preparer listed for "next year's" (2023) depreciation. I spent a couple of hours with live help, and they couldn't figure it out either. I may have to go back to my preparer if I can't get this to work.

[crosent344]

Same here-I tried using TT last year, and live help was no help at all, just canned answers that weren't a solution.  Gave up and went to my tax preparer again.  Tax guy laid out my depreciation schedule for 2023 but can't get TT to get the same numbers.  Funny, I did a test entry on both efile.com and H&R Block apps and they both calculated it to the penny with minimal effort.  I guess i will end up using one of those but compare the other values against TT for a cross check.  That solution does look promising but so much work.  I'm likely not spending any more time on TT trying to get it to work when it calculated so fast and accurate on both those other sites.  Clearly TT needs to work on this part of the app.

[KrisD15]

TurboTax does just fine if a rental is reported from the date it is put into service until it is converted.

If there is sporadic personal use, you would need to be creative by reporting that the rental activity was ended, and then restarted or by adding "Improvements" to adjust the basis. Adjusting prior depreciation is not a good idea as that should be a true running total.

The same is true for business vehicles that are not 100% business use. 

If you need to establish depreciable assets, it is advisable to use TurboTax Desktop and make necessary edits directly onto the forms.

[cchat]

My assets have had no break in service. The resulting numbers just do not match the depreciation detail from my tax preparer from 2022 and worksheet for 2023. I chatted with two online support people. The first (5 years experience) didn't know the answer and just asked if I had any other questions. The second (10 years experience) was great - she spent an hour and a half with me and was able to help me get the right number for amortizing points, but she didn't know why the two items of depreciation would not calculate correctly. It would be great if that same support person could follow up with me when she finds an answer. Instead, I would have to open a new live chat and just hope they have the answer.   My return should be very simple, but it's taking hours to complete.  There should be a way to log this as a support request and receive follow-up from TT.

[AmyC]

The date placed in service, the method to calculate the depreciation, the life span and dollar amount used are all needed to get the right value. Once you input all of the items the same, the values should match. As someone with over 30 years of experience, I have had to move parts and pieces of the equation a little bit with multiple softwires over the years to get the numbers to match (or come near) the prior. As long as you have your records and can show you are just continuing where you started, there isn't an issue. If you suddenly change the life span or method used, then you have a problem. If you are close, so that your tax liability has less than $25 impact, don't worry about it.

@cchat

[cchat]

Thanks for this, but this is the first time I've attempted to do my own taxes in over 20 years, so I'd rather not raise a red flag by suddenly showing different numbers in my return. These are both straight-line depreciation items so it will be pretty obvious.  If TT can't calculate the correct deduction and I can't enter the correct information directly, should I err on my own behalf by choosing a slightly larger deduction, or choose a slightly smaller deduction in case I have to defend the change at some point? I don't think I should have to make this choice when paying TT to generate a correct return.

[AnnetteB6]

When you are entering depreciation information into TurboTax, the program may somewhat restrict the choices you can make in order to guide you to entering something that is correct by the tax law.  Trying to enter the information to match prior depreciation information can be tricky.

Here is a guide for how to go about entering depreciation into TurboTax in order to duplicate the entries that have been made on previous returns to continue the same depreciation.

• Start from the Schedule C or Schedule E section of your return until you get to the Assets/Depreciation section.
• Proceed to the point where you are adding an asset on the page titled Describe This Asset.
• In order to enter the asset exactly as it has been reported in the past, choose the last option on the list, Intangibles, Other Property, then click Continue.
• On the next page titled, Tell Us a Little More, select Other asset type, then click Continue.
• Enter the detailed information about the asset:  description, cost, date purchased or acquired.  Click Continue.
• Move forward with additional details on the next screen, then click Continue.
• Select the appropriate Asset Class, then click Continue.
• Choose the MACRS Convention, then click Continue.
• Select the Depreciation Method, then click  Continue.
• Answer the question regarding Listed Property, then click Continue.  There may be some additional background questions as well, keep going.
• You will eventually come to a screen to confirm the Prior Depreciation, enter the data and click Continue.
• Finally, you will see an Asset Summary screen with the current year depreciation amount listed.  There is also a check-box here to Show Details.  This will open a full description for the asset so you can verify that it matches the previously reported information.  If it does not, you can choose to go Back and re-enter the data that needs to be changed.

@cchat 

[crosent344]

I went through your steps precisely as you indicate, with the desktop version, and it still calculates the depreciation incorrectly. It calculates the same depreciation value even when I use Other Asset Type-it makes no difference.