Should there be two residential asset depreciations listed for a gift house converted to a rental?

[23bambam23]

In 2013 my mother gifted me her house she purchased in 1990, which I then converted to a rental property.  I noticed Turbotax has created two depreciation assets for this house; one asset allowed me to name it with the address of the house and lists the Date Purchased or Acquired as 2013.  The other asset is simply titled "Residential" since it didn't allow me to name it, and lists the Date Purchased or Acquired as 1990.

I indicated in the interview that the house was NOT used as a rental property prior to 2013, so why did TT create the second "Residential" depreciation asset?  Should I delete that depreciation and amend following years' tax returns to delete the depreciations previously claimed under that second asset?

[Critter]

Is one of them for AMT ? 

It may be best to talk to someone live instead of this forum ...

Contact TurboTax support and speak directly with a TurboTax support agent concerning this situation.

See this TurboTax support FAQ for a contact link and hours of operation -https://ttlc.intuit.com/questions/1899263-what-is-the-turbotax-phone-number

Support can also be reached during business hours by messaging them on these pages https://www.facebook.com/turbotax/ and https://twitter.com/TeamTurboTax

[Critter]

Ok ... upon further thought ... the program is keeping track of the 2 cost basis amounts you need for the time you dispose of the property since it was a gift you need both.  

[23bambam23]

Thank you for the contact info.  I will call them since it seems like there should be a better way to track the basis and I am worried that it will create problems if I sell the house and have been taking twice the depreciation I'm entitled to.  FYII The other depreciation was not for for AMT.

[tagteam]

Absolutely contact Support as @Critter suggested. However, Support is closed today (11/11/2019).

Out of curiosity, though, did you happen to just notice this in a newly released, 2019, version of TurboTax or have you seen this in previous years' versions?

It is extremely unusual for the program to automatically create two assets without user input and I cannot help but wonder whether this error was induced by a year-to-year transfer.

[Carl]

I can most likely help here. First, are you using some flavor of the desktop version of TurboTax 2019. If you don't answer any other question, *ANSWER THIS ONE* please.

In 2013 my mother gifted me her house she purchased in 1990,

Understand you also inherited your mother's cost basis. This is important!. The FMV of the house when you inherited it in 2013 *does* *not* *matter*.

which I then converted to a rental property.

So the absolute only place you have *ever* entered this property on your tax return is in the Rental & Royalty Income (SCH E) section of the program, right? I need to confirm this beyond any and all doubt.

I noticed Turbotax has created two depreciation assets for this house; one asset allowed me to name it with the address of the house and lists the Date Purchased or Acquired as 2013.

If you've had that since 2013, then that's a user error. If it's been that way since 2013, then you may *or may not* need professional help to fix this. That's what I'm going to help you determine.

What is the "business use percentage" on the one called "residential" that you can't change? Does that specific asset entry show "any" prior year or current year depreciation? If yes, how much?

[23bambam23]

Hi Carl,

I've always used CD versions of Premier TT.  I actually haven't submitted my 2018 taxes yet and was working on them when I realized the impact of this issue.  The two depreciations have been listed each year from 2013-2017.

I did list my mom's cost basis as the price I "paid" for the property but was living with her in the house in 2013 prior to us moving out and converting it to a rental.  My name was on the mortgage along with hers from a previous refinance so in the interview I indicated 2013 was the first year I rented the property and also that I converted the property from personal use to a rental in 2013.  Therefore in addition to schedule E, the property is also listed in the 2013 Deductions and Credits section as I deducted partial year mortgage interest and property taxes before moving out of the residence and converting it to a rental property.

The Business Percentage on the 1990 Residential asset on my 2013 taxes is listed as 100% of the time since I acquired it.  The next page on the interview asks to Confirm my Prior Depreciation and lists a value for the Amount of Depreciation Taken in Prior Years that is about 70% of my mom's cost basis.  Should I have changed this to 0 in the interview?

Thanks for all your help and interest in this matter!

[Rick19744]

Contrary to @Carl comment, FMV of the house that you inherited is absolutely important and does matter.  You will need to know this figure when you eventually sell the house.  

This does not impact your depreciation computation, as your mom's carry over basis (cost basis) will be used as noted above.

However, when you sell the house, you will need to know the FMV of the house at the date of inheritance should it be sold at a loss.  This is key and you should determine this now while it is fairly "fresh", instead of trying to figure this out at a much later date.

[tagteam]

---

@23bambam23 wrote:

The next page on the interview asks to Confirm my Prior Depreciation and lists a value for the Amount of Depreciation Taken in Prior Years that is about 70% of my mom's cost basis.  

---

So, you allowed the program to compute prior (accumulated) depreciation through 2013 in the 2013 version of TurboTax?

Have you also been taking depreciation deductions from 2013 through 2018 based on that valuation and another (on the same property) that you entered in the Schedule E (Rental Properties) interview?

If you, indeed, have been claiming too much depreciation, then many (probably most) tax professionals would likely recommend filing a Form 3115 to make a Section 481(a) adjustment. If that sounds overly technical that is because it is and you will absolutely need assistance preparing that form.

Note that some tax professionals will state that you can simply amend because you were technically not using an impermissible method of accounting (i.e., you made a mathematical or posting error) but, either way, you should seek professional guidance.

[Carl]

@Rick19744 :

FMV of the house that you inherited is absolutely important and does matter. You will need to know this figure when you eventually sell the house.

Why? For what purpose?

However, when you sell the house, you will need to know the FMV of the house at the date of inheritance

Did I miss something? I didn't see anything about an inheritance. The house was gifted - not inherited. So the FMV of the house on the date they were gifted it has no bearing on the cost basis of the house when it's sold or otherwise disposed of.

[tagteam]

@Carl 

Read the information at the link below. Donees should keep track of the FMV on the date of the gift.

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...

[Carl]

Thanks @tagteam 

One thing to note is that for reporting rental income/expenses and particularly for depreciation, the giver's cost basis is the only thing that matters. FMV at time of receipt by the recipient plays no part in any way, form or fashion in any of the tax returns they've reported this property on. For this thread, that would be all tax returns since 2013 to present.

The main purpose this thread was created by the original poster was to figure out why there are two listings in the asset summary for what is essentially the same property. If they ever respond back, I can help them figure this out.

Overall though, I suspect (and hope) that the "residental" one can just be deleted. But I first have to confirm beyond any shadow of a doubt that the businses use percentage of that one is zero, and that not one penny of depreication was taken on that particular entry.

Then we need to confirm that the remaining entry which the OP entered themselves in 2013 is correct and shows the correct depreciation for the property.

Only after both paragraphs above are confirmed, can we then delete the "residential" entry and no professional help is needed and no 3115 needs to be filed to "fix" anything.

[tagteam]

Two things @Carl:

1) The OP already stated, "The Business Percentage on the 1990 Residential asset on my 2013 taxes is listed as 100% of the time since I acquired it." So, the only issue is whether or not there were any deductions for depreciation on that asset.

2) You specifically stated, "So the FMV of the house on the date they were gifted it has no bearing on the cost basis of the house when it's sold or otherwise disposed of.", and that is simply misleading as the FMV very well could be relevant upon a disposition.

[Carl]

More than likely the FMV was higher, and more than likely if/when the property it sold, it will be at a gain. But while I agree and now understand why the FMV does need to be known even if the chances of it mattering in the future are slim, it does have no bearing on the concerns of the OP at this time. Key words "at this time". To have said it's totally irrelevant was a boo-boo on my part, even though it doesn't matter for the issue at hand.

Overall, something's not right here. If it can be salvaged without the need for profesionnal help via form 3115 we'll do that. If not possible via that route, then the only viable option is professional help to ensure it's done correctly.

I myself hate the 3115 because it "looks" simple and easy. If there's one thing I've learned over time, it's the two statements that guarantee failure.

 1) You can't miss it!

2) It's eeeeeeeeeeeasyyy!

[23bambam23]

Thank you Rick, I do have records of the FMV of the house at the time it was gifted to me.