Tax Year Prior to 2020: Calculate depreciation for rental property?

[dogmom88]

Thank you!  Part IIIB of Form 4562 is showing the below.  Everything is correct until (g) and I can't see the calculation it is running behind the form.  Is there a way to manually change it?

(a) 19h Residential Rental Property 

(b) Month and year PIS - 11/20

(c)  Basis for depreciation - 244,200

(d) Recovery period - 27.5 yrs

(e) Convention - MM

(f) Method - S/L

(g) Depreciation deduction - $8,510

[dogmom88]

Ok - figured out why this was happening.  I had somehow picked (or it defaulted to) the choice of a fiscal year instead of calendar year on the initial information page for the 1041.  Once I changed that to calendar year, it correctly calculated the depreciation deduction for 2020.  

[Harfouc1]

Hello I have a question on depreciation! 

I have a property I used 85% for business use in Years 1 and Years 2. Placed in service Feb 1 2018. 

Depreciation for year one was 11/12*85%*PurchasePrice/27.5 = 4675

The depreciation for Year 2 was

85%*purchase Price/27.5 = 5100

For year 3 we changed to 100% business use.

How do I figure depreciation for year 3?

Do I take (165,000-5100-4675) and start depreciating all this but for only the 25 and a few years left? Or do I adjust the personal use property basis downwards to reflect wear that the property suffered during personal use. 

Thank you! 

Taken in the extreme.... 

What if I had used the property for 75% business use for 26.5 years and then convert the personal property portion to business use for that last year? Would I be stuck depreciating the personal use section in 1 year? 

[DianeW777]

No, do not adjust or alter the cost basis of the property, instead change the use percentage to 100 percent.  Continue depreciation as though it was always 100%. You must manually track the depreciation for the first two years of use.  It will needed in the year you sell the property to reduce any gain.  

It will be easy to make the adjustment when you sell the property, the difference between what you actually used for depreciation and the amount allowed if it had been 100% business use will be an adjustment at that time. Keep the information with each new tax year so that you will have it at the appropriate time.

This process would be the same for your last question.

[Harfouc1]

Diane

Thank you for your answer.

So my question is: if I change it to 100% and enter prior depreciation numbers it tries to depreciate whatever is left. But doesn't realize it was only used at 85% for those past years. 

[Critter-3]

So my question is: if I change it to 100% and enter prior depreciation numbers it tries to depreciate whatever is left. But doesn't realize it was only used at 85% for those past years. 

The program is handling it correctly due to the change in percentage usage.  

[Harfouc1]

Okay I see. It does work!

$6000 is what the value should be. 100% for this year. And it worked!

Okay now my next question: I used it 85% for 35 days in start of 2020, then the tenant moved out, I had to repair the property (still in business not personal use) and then I rented out 100% in July 20th - Dec 31. (164 days). 

Do I count the time that the property was being repaired for depreciation purposes and use ((100%*164 days) + 85%*201 days)/365)= use % or do I only use 199 days  as the time it was in service for the year and then calculate the percentage as (100%*164+85%*35)/199?

Note: I did not claim the new flooring to increase the basis of the property even though I may do that. I am OK losing this deduction.

[Critter-3]

Ok ... now I see what you  problem is ... you had NO personal use of the property so it was 100% business use the entire year (and probably for the prior years as well).  You count the time it was rented and the time you were making repairs as business use  but when it asks how many days the property was actually rented you only put the actual number of days.  

And you MUST add the improvements to the property for depreciation ... this is REQUIRED and not an option.  

This is one of those times where you should have used a paid tax pro the first year you put the rental in service so you could be educated and start on the right foot.  Now I fear you have to do some amending of the prior years ... so PLEASE seek local professional assistance to get the mess cleaned up.  

[Harfouc1]

"And you MUST add the improvements to the property for depreciation ... this is REQUIRED and not an option.  "

Why must I do this? I'm not claiming them as expenses either. The point of adding them to depreciation is so you can't have a giant Loss in 1 year as a result of a $20,000 reno for example. In my case, I'm not using the $20,000 as an expense.

Also, in the first year, the dpreciation is DONE correctly. 85% Business use for 10.5 months of the year. 

The second year, it IS done correctly. 85% Business use for 100% of the Year no Personal Use.

 It is THIS year where for 35 days It was still rented out. Then I made renovations to the property and I ALSO converted the personal use portion of the property for Business use.

[Harfouc1]

And obviously this is NOT legal advice or a CPA, but this post explains WHY the rules are the way they are. In my case I'm NOT claiming any of the costs of the renovation/repair because I feel like it's too complicated to chase down my receipts. Basically, I'm losing a HUGE tax advantage ($8000 of renovations), but I'm OK with that.

https://www.thebalancesmb.com/improvements-vs-repairs-2125241

why is it not legal to just not claim the expense and "write it off" in my personal books (no tax benefit at all). Honestly, its' all a very bad emotional memory and I don't want to deal with it, even if I lose more money. 

[GrnEyz]

This is my first year using Turbo Tax. I entered my rental properties and prior depreciation taken thru 2019. It's only been my rental for 21 years at the end of 2019. It is calculating $0 depreciation on it for 2020 and what it is estimating what the prior should be is close to $30,000 less than what I have taken. The program that calculated it in the past was doing it by Straight Line.

Has anyone else had this issue? 

[MarilynG1]

@GrnEyz Review your entries in the Property Info section.  Be sure you indicated that it was 'rented all year' and you were an 'active participant' in your rental activities for Current Year Depreciation to be calculated for you.

TurboTax also uses Straight Line Depreciation on Rental Property for 27.5 years.  If you entered the same Cost Basis and Date Started Renting as used previously, the prior depreciation calculation should be the same.  Make sure you separate land from building, as this may be causing the discrepancy. 

However, you can start in TurboTax by reporting your Prior Depreciation Amount when you enter the property in the Assets section, and then continuing your depreciation from there (screenshot). 

Click this link for more info on Depreciating Rental Property.

[Lebo62]

Why does turbo tax "calculate a new straight line depreciation amount using the new basis information (cost less prior year depreciation) over the assets remaining life"?!  This is a bug in the system, no?  Isn't straight line depreciation supposed to be the same amount every year?  This is why I haven't filed my taxes yet.  Could someone please explain why this isn't wrong?  In my case, my rental property's depreciation has been the same amount for the last 10 years.   This year - it seems to me because of the language quoted above - TurboTax is giving me a depreciation number that is hundreds of dollars less than it seems to me it should be.  

[Lebo62]

Nevermind.  Mistake was mine (land cost was included in cost; I listed it separately as if not incuded; that's what led to the problem.  Once I fixed that, depreciation amount came out same as in past years.

[joelgood]

We bought a house that was then 36 years old and rented it out for 2-6 months each year from 2010 t0 2020 when we sold it.  Because our applicable expenses for the months it was available for rent exceeded your rental income in most years, we didn't realize we had to take depreciation since we understood we would have to recapture it when we sold the house.  We did sell the house in 2020 and are paying capital gains on the house on our 2020 return.  But we have been told we also have to claim the depreciation we didn't take those years.  How do we calculate the amount of depreciation for all those years?  Or can we just claim depreciation in 2020?