Residential rental property depreciation does not add up in TurboTax 2021?

[asdfg1234]

I am at the window where Turbotax asks about  "Cost", "Cost of Land" and "Date purchased". If I enter Cost as $540,000, Cost of Land as $500,000 and Date Purchase or acquired as 01/01/2020.

Then if in the next window I enter "Yes, I have always used this item 100% of the time for this business", then Turbotax calculated "Your 2021 estimated expense for this asset is $1394"

However, wasn't it supposed to be ($540,000-$500,000)/27.5years=$1454?

[tagteam · Accepted solution]

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@asdfg1234 wrote:

However, wasn't it supposed to be ($540,000-$500,000)/27.5years=$1454?

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Is this for the 2022 tax year?

Note that the difference between the $1,454 you calculated and the $1,394 TurboTax calculated appears to be due to the mid-month convention.

Residential rental real estate is treated as having been placed in service at the mid-point of the month, not the beginning (i.e., placed in service on 1/1/2022 would mean depreciation begins on 1/15/2022 - half a month for the first month).

[asdfg1234]

This is for 2021.

Indeed, if I put 12/01/2020 as "Date I started using it in this business", then I get to $1,457 "depreciation deduction". And AMT depreciation deduction is $1,455 (Off by $2).

Is this turbotax limitation that it rounds up date to mid month? Or is that IRS requirement?

[tagteam]

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@asdfg1234 wrote:

Is this turbotax limitation that it rounds up date to mid month? Or is that IRS requirement?

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Tax law. Residential rental real estate uses a 27.5 year recovery period and the mid-month convention.

[Carl]

To confirm weather or not the program is doing it right (and I'm sure it is, unless you entered some wrong information) use the worksheets the IRS provides.

See IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf and use the worksheet on page 36. For line 6  of the worksheet, table A-6 on page 71 applies. Note that for the first year, the depreciation is pro-rated based on the date placed in service. This is true even if placed in service on Jan 1st of the tax year, since the mid-month convention is used.