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4earl5
Level 2

Rental Property joint ownership

I got married last year. My spouse and I jointly owned rental properties before we were married and have filed taxes using the deductions and income for our respective share of ownership of each property. How do we combine the two records for filing jointly? Do we just declare that each property is 100% owned on Schedule E?

1 Best answer

Accepted Solutions
Hal_Al
Level 15

Rental Property joint ownership

Alternate plan: start over.

Assuming, you going to start your new joint return by transferring one of your old returns: go to assets and delete the house (assuming that was your only asset).  Then enter the house as a new asset, using the original basis and start date and 100% joint ownership.  TurboTax (TT) will automatically calculate the previous depreciation taken.  If it does not come up with the exact amount, you two claimed, you are given a chance to change it.

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10 Replies
Carl
Level 15

Rental Property joint ownership

Just to reiterate the obvious so it's "out there" in the open and to confirm I understand things correctly and completely.

For your 2018 taxes both of you filed with a filing status of single.

Both of you have a SCH E on your separate returns.

Both of you have 100% ownership in all properties reported on your respective 2018 SCH E's.

Now if all the above assumptions are correct, it's perfectly possible for all rental properties to be reported on one single 2019 joint tax return. In fact, that's the best way to do it tax-wise. However, you have to transfer the rentals from one of the 2018 tax returns, to your joint 2019 tax return.... and you have to do it correctly. Otherwise, the main thing that will be blatantly wrong is depreciation. So.....

Did both of you use the online version of TurboTax to file your 2018 returns? Or the CD/Desktop version?

Which one of you has the most rental properties? Or maybe you  both have the same amount?

I need to know this so I give you the property details on how to do this right, the first time. Screw it up, and you'll be celebrating your 3rd or 4th annaversary in the poor house. Let's avoid that.

Basically, one of you will change your status from single to MFJ and will have to manually enter, one keystroke at a time, the rental data from the other's 2018 tax return. I'll give you details on this (which do matter) once you've provided the data requested above.

 

 

I

4earl5
Level 2

Rental Property joint ownership

We both filed as single in 2018. Together we have 100% ownership of all of the properties and have been reporting income and expenses on our respective SCH E forms as 50% each. We both used the CD/Desktop version of Turbotax and have no other rental properties than the ones we jointly own.

Carl
Level 15

Rental Property joint ownership

So glad you both used the CD version for 2018. That makes things a "whole" lot easier and simpler for both of us.

 

We both filed as single in 2018. Together we have 100% ownership of all of the properties and have been reporting income and expenses on our respective SCH E forms as 50% each.

No, you don't report 50% ownership each, as a separate declaration. That's going around your elbow to get to your thumb.

Pick one of your 2018 tax returns to import from. Let's say it's your tax return.

You will first use TurboTax 2018 to open your wife's 2018 tax return.

In TurboTax 2018 select the FILE tab, and under that tab select "Print/Save For Your Records"

Click the "Save a PDF" button.  Then select "Tax Return, All Calculation Worksheets" and select the button to "Save as PDF".

Take note of the filename and the location where the PDF will be saved, and save it.

Now completely exit TurboTax 2018 and open the PDF file you just saved.

With the PDF open, search for "4562" (use CNTL-F to open the PDF search box.)

You are searching for all IRS Form 4562's associated with the rental property she owns. There will be two 4562's for each property she owns. One is titled "Depreciation and Amortization Report" and the other is titled " Alternative Minimum Tax Depreciation Report".

Print both of these forms for each rental property. You will definitely need the first one I mentioned, and "may" need the 2nd one also. Note that each form has the label assigned to each property in the upper left corner of the form, right below words "Form 4562".

Next, search for and print the IRS Form 8582 - Passive Activity Loss Limitations. Print it if found. If the 8582 is not there, that's fine. That just means she has no carry forward losses is all.

Once everything is printed, you're done with TurboTax 2018 and the PDF file. You can close everything out.

Now fire up TurboTax 2019 and start a new return. You will import from "YOUR" .tax2018 file. (You already printed what you need from your wife's 2018 taxes.)

Of course, you'll be changing your filing status from single to MFJ and entering your wife's data, along with anything else that pertains to your new "married filing joint" status under the Personal Info tab.

When you get to the rental stuff, go ahead and work your properties through as you normally would, reporting all your rental income/expenses and the what-not. When done, you'll be returned to the Rental Summary Screen.

On that screen select the button at the bottom for "Add Another Rental or Royalty" and begin entering the data for your wife's rental property. Perfection here is a must so here's a few of the details that matter.

Basically, the data you enter concerning her rentals must match "exactly" what is on the 4562 for that property, with one exception.

When asked for "prior year's depreciation already taken" take a look at the 2018 form 4562 titled "Depreciation and Amortization Report". Now on that 2018 form add together the amounts in the "prior years depr" column and the "current year depr" column. You will enter that total in the TTX 2019 program where it asks for prior year's depr already taken.

It would be smart to enter all assets "EXACTLY" as they are listed on her 4562 for that property.

Now absolute perfection in this is not an option...it's a "must". So if something doesn't "look right" or "seem right", it's probably not right. Just let me know.

Assuming her property has been rented since "at least" 2017, I would expect the depreciation for 2019 to be within a few bucks of what was taken in 2018. It won't be exact, I know. But if it is exact, all the much better.

 

When asked for any carry over losses, those will be on the IRS Form 8582 if you got one from her 2018 tax return.

I'll stop here, because I want to do my best to avoid "information overload" on your end. So work it through and if questions arise, please ask.

Finally, note that you can expect to have to "start over" a few times too. It's just part of the learning process. You don't learn anything by getting it perfect the first time. Most of what you learn is what "not" to do... and you don't learn it by not doing it either. So if/when you need to start over, simply close the TurboTax 2019 program then delete the .tax2019 (not the .tax2018) file in the documents/turbotax directory. Then when you fire up the TTX 2019 program again, it's "as if" you just installed it and are starting your tax return for the first time.

 

4earl5
Level 2

Rental Property joint ownership

Thank you for your long answer. This is complicated so I'll ask a few questions.I have printed all the Form 4562's and the Form 8582. I started adding an asset as a test. Do I keep the same % ownership as on my spouse's former tax return and end up with two SCH E's and two Form 4562's for each Property? Is the Form 4562 generated when I create a SCH E?

Hal_Al
Level 15

Rental Property joint ownership

Alternate plan: start over.

Assuming, you going to start your new joint return by transferring one of your old returns: go to assets and delete the house (assuming that was your only asset).  Then enter the house as a new asset, using the original basis and start date and 100% joint ownership.  TurboTax (TT) will automatically calculate the previous depreciation taken.  If it does not come up with the exact amount, you two claimed, you are given a chance to change it.

Carl
Level 15

Rental Property joint ownership

Do I keep the same % ownership as on my spouse's former tax return and end up with two SCH E's and two Form 4562's for each Property?

Ownership percentage is 100% (one hundred percent) no matter what. One of the screens at the start of entering the property will ask you "WHO" owns it. Your checkbox selections are me (by name), spouse (by name) or "both of us".

If you live in a community property state then select "both of us". Otherwise, it's really your choice.  But no matter what you select, that selection you make has ONE HUNDRED PERCENT ownership in the property.

 

Is the Form 4562 generated when I create a SCH E?

Your wording is to generic. The 4562 is created when you "complete" the assets/deprecation section. The 4562 is created based on the data in the assets/depreciation section. A single SCH E will hold three rental properties. If you look at one, you'll see a section with columns labeled A, B and C. A column for each rental property.

So a single SCH E form will account for three rental properties, and the TurboTax program can handle a maximum of 15 SCH E forms for a total of 45 rental properties.

and end up with two SCH E's and two Form 4562's for each Property?

You will end up with "at least" one 4562 for each property. That would be the one titled "Depreciation and Amortization Report".  You may or may not also get the one titled "Alternative Minimum Tax Depreciation Report".

Understand that the reports that print in landscape format are never included with you filed tax return. It's there basically for historical purposes and to providing the "working data" needed to complete the 4562 that prints in portrait format. The one that prints portrait is the one filed with the tax return, and it's only included with the filed return if there's a change of some sort. You can see what that version of the 4562 looks like at https://www.irs.gov/pub/irs-pdf/f4562.pdf. Overall though, I fully expect the program to actually generate that form for the 2019 taxes, since there is "in fact" a change in 2019. But the landscape forms will always be generated every year, no matter what.

Carl
Level 15

Rental Property joint ownership

Oh one more thing.

This is complicated

Actually, it's not. Stop trying to wrap your head around everything all in one shot. Even I can't do that. Break it down into "working modules" and just "work it".

SFAllMyLife
Level 2

Rental Property joint ownership

For the life of me I can't see any option to add a new question or topic after reading the response to this one. I am only able to "reply." Maybe there is a technical problem with my account?

 

Here is my question:

"rental property: how to split depreciation after adding new owner"

 

So I've (call me PersonA) owned a rental property for almost 10yrs. Due to financial hardship, I re-financed recently and added a new owner (PersonB) to the property to help out financially. The loan was re-financed to Joint Tenancy. The title to the rental house is Joint Tenants (PersonA & PersonB). The loan is under both PersonA & PersonB names. From what I read, depreciation doesn't change for the house (unless a sell happens). So I am trying to figure out how to split the DEPRECIATION part of the house. PersonA will continue with the Schedule E similar to previous years with a lower percentage. PersonB will now have to include a new Schedule E, but how to split depreciation? How to reduce on PersonA's Schedule E and add the less than 100% of the depreciation to PersonB's new Schedule E?

AmyC
Expert Alumni

Rental Property joint ownership

Person A:Go to the assets and depreciation section of your return. Be sure to note what the numbers are along with all past depreciation. You can change your basis in the house to the new amount. When you do, all of the past depreciation numbers will change in the program. This is why you need to keep all of your sch E and supporting documents in one place.

 

I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your schedule E carryover information, and proof of your basis in your various investments. You must keep tax records related to a rental house from the time you purchase until you sell plus 3 years. It is very easy to lose track of disallowed losses, changes in depreciation, etc.

 

Person A is now set with the change in value of the house for 2020 to match reality.

Person B will now depreciate the rental on their return for their investment amount for 27.5 years as it is a new rental to them.

 

@SFAllMyLife

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SFAllMyLife
Level 2

Rental Property joint ownership

Thank you for your reply.

 

Go to the assets and depreciation section of your return.

This is the form 4562? Depreciation & Amortization Report?

 

You can change your basis in the house to the new amount. 

How do you make this change in TT? If PersonA's current Joint Tenant declared share is 30% , when in 2019 PersonA's was the sole owner at 100%, how do you change / edit the basis? Some pervious comments suggest deleting the asset and inputting as a new asset (taking into consideration the prior depreciation). Is there a way to tell TT that going forward the remaining balance of the depreciation is now split differently?

 

Person A is now set with the change in value of the house for 2020 to match reality.

PersonA has been depreciating the rental house since 2010 year as sole owner. Up to 2019, it has been 9 yrs.  Let's say the original basis was $100,000. So $100,000 / 27.5 = $3,636 depr per year. At the end of 2019 tax year, the NBV = $100,000-(3636x9)=$67,276. In 2010, ownership change from sole owner (PersonA) to Joint Tenants (PersonA-30% & PersonB-70%).  At this point, how do I tell TT to adjust the current year depreciation to $1,091 ($3,636 x 30%)?

 

Person B will now depreciate the rental on their return for their investment amount for 27.5 years as it is a new rental to them.

For PersonB, their portion of the depreciation should be $2,545 ($3,636 x 70%)? When this new asset is entered into TT, the Date in Service will be 2021, or do I still enter in the historical date? Will the basis for this new asset be original basis + all prior depreciation?

 

Thanks for all your help!

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