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lin wang
Level 1

The rental property depreciation calculation seems incorrect?

The TurboTax's depreciation result is different from what I calculated last year using another calculator.

 

my house cost is $280,023

I brought it in 2014 and start to rent it in 2019.

Use the other real estate calculator:

Recovery Period 27.5 years (shown in Form 4562 line 19h)

2019 depreciation is $9,758.38

2020 depreciation is $10,182.65

 

But when I use TurboTax this year, there are two problems:

the Recovery Period becomes 30 years, not 27.5 years;

and the 2020 depreciation is $9,306, not $10,182

why they are different?

 

I hope someone can answer me, thanks!

4 Replies
jtax
Level 9

The rental property depreciation calculation seems incorrect?

First comment, be careful about what number the depreciation is based on. It appears from your numbers that you are depreciating the entire cost of the house. But you cannot depreciate the value of the land. Only the cost of the improvements (structures, etc.). See Q3 from this one way to calculate this: https://www.irs.gov/pub/irs-regs/depreciation_faqs_v2.pdf

 

If you did include the value of land, you should update your cost basis for this year to exclude the land value. You might want to amend your prior return if you are worried about the IRS catching that error, but you are under no obligation to file an amended return for an honest mistake. 

 

The 30-year life is probably for a different depreciation method. Why your property was MARCS 27.5 previously and now is ADS (30 yr) confuses me. But you might review your asset entry worksheet to verify that you didn't somehow accidently switch.

 

Re: the calcs being different. Note they are the same for the second year. In the first (and last) years depreciation is prorated by a "depreciation convention" based upon the date the asset was put into service. This is designed to prevent you from putting an asset into service on 12/31 and getting depreciation for the whole year.

 

But this is very complicated! It is possible you gave slightly different answers for the in-service date resulting in the slightly different depreciation amounts for the first year. Or the online calc might just be wrong. See http://www.loopholelewy.com/loopholelewy/02-business-deductions/car-expenses-08c-depreciation-conven... (about business equipment but you'll get the idea).

 

I would go with TT's numbers. They will stand behind the calculation if you have entered all the data correctly.

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Carl
Level 15

The rental property depreciation calculation seems incorrect?

the Recovery Period becomes 30 years, not 27.5 years;

The 30-year life is probably for a different depreciation method.

..and most likely the wrong method, depending on the specifics. You either incorrectly told the program that the property is foreign residential rental real estate, or the property "is" in a foreign country and your selection in the earlier years was wrong.

Residential rental property located in the U.S. is depreciated over 27.5 years.

Residential rental property located outside the U.S and placed in service in 2018 or *AFTER* is depreciated over 30 years.

Residential rental property located outside the U.S. and place in service ***BEFORE*** 2018 is depreciated over 39 or 40 years (can't recall which exactly).

 

lin wang
Level 1

The rental property depreciation calculation seems incorrect?

thank you. It's a foreign property. I understand.

lin wang
Level 1

The rental property depreciation calculation seems incorrect?

thank you. 
I checked a little bite.

the reason is it's a foreign property, so use the 30 years.

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