TurboTax is correct in using 40 years.
Property outside of the US is required to use ADS, which is 40 years for rental properties that are "placed in service" in 2017 or earlier years.
https://www.irs.gov/publications/p946#en_US_2017_publink1000107510
According to recent cases it seems the shall in IRC code may be permissive and allows for possibility of selecting GDS vs ADS. Please review the following reference and comment: <a rel="nofollow" target="_blank" href="https://www.castroandco.com/blog/2018/march/depreciating-foreign-rental-property/">https://www.castroandco.com/blog/2018/march/depreciating-foreign-rental-property/</a>
TurboTax software may need to update the software to allow 27.5 straight line method for foreign property if this is correct.
That article is worthless, extremely skewed and insulting
First, let's address that the author's point out ADS being 30 years versus 40 years. He says "Now that you know for certain the so-called experts didn’t even get the depreciable life of foreign rental property correct ...". He fails to point out that 40 years has been the correct ADS recovery period for MANY years (I think the last 32 years, but I would need to check that) and is STILL the proper recovery period for pre-2018 assets. The 30 year ADS recovery period just began this year (2018). So the fact the author is trying to put down others who have said 40 years should be a giant 'red flag' for how skewed this article is.
Second, let's address that court case. It does say that "shall" can mean "may" in "SOME CONTEXTS". Again, in "some contexts". The author neglects to point out that immediately before that statement it also said ' "shall" generally means "must," '. So that part of the court case merely points out that the word "shall" doesn't ALWAYS mean "must" *IF* the context shows otherwise.
Third, let's look at the context of §168. It gives a list of items that "shall" use ADS (including property outside of the US). One of those other items is for taxpayers who ELECT to use ADS. If it was an election for foreign property to use ADS, there would be no point in listing that separately from the item that everybody can elect it. While I'm not wording this very well, the CONTEXT is VERY CLEAR that Congress meant this to be mandatory.
So as I said before, that article is extremely misleading, and 30 years is correct.
I agree regarding the first point and do not identify myself with the tone used in the explanation. Regarding the second point, I must add that I am not a lawyer but once its established legally that "shall" can mean "may" (<a rel="nofollow" target="_blank" href="https://legaldictionary.lawin.org/shall">https://legaldictionary.lawin.org/shall</a>), the term shall being mandatory seems debatable. Based on my interactions with a few CPAs, I have heard different arguments about the election being applicable to the foreign rental property. While making the choice for new rental its easy to select 40 years. However, if the property is already under GDS does it really need to be converted to ADS along with prior amendments and form 3115 considering the language could be permissive. It looks like lots of people are in the similar situation so clearly there are CPA professionals interpreting it as a permissive language. Is there an official way to confirm this with AICPA?
AICPA does not make rulings. To me, it is extremely clear that ADS is required. The context of §168 makes it quite clear.
Page 27 of Pub 946 lists "Required use of ADS" (<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p946.pdf">https://www.irs.gov/pub/irs-pdf/p946.pdf</a>) with the terminology must use and it does not include this case for individuals [i.e. §168(g)(1)(A)]. On the next page it goes further to state "Once you make this election, you can never revoke it"
Yes, it MUST use. If everything else is "must", what do you think exempt foreign property is exempt from the "must"?
And in prior years, foreign property *IS* included in that list, but the law was not changed in that regard in 2018, so it is likely just an oversight in whoever wrote the revised Publication.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-prior/p946--2017.pdf#page=30">https://www.irs.gov/pub/irs-prior/p946--2017.pdf#page=30</a>
Again, I don't see ANY leeway here. The law is quite clear based on the context.
Regardless of whether foreign residential rental need to use ADS or GDS, 2018 IRS Publication 527 states at the bottom of page 9 (comment 1) that property that was places in service after 2017 should be depreciated over 30 years. But I am preparing my 2018 return for a foreign residential that was converted from personal use to rental on 1/1/2018 and TurboTax still use 40 years.
Can you please explain why it is doing it?
Can you also be specific on where in IRS Publication 946 there is an instruction to use ADS for foreign rental property.
Thanks.
@apollog wrote:Can you also be specific on where in IRS Publication 946 there is an instruction to use ADS for foreign rental property.
It is in the Internal Revenue Code - §168(g)(1)(A) requires the use of ADS for property used predominantly outside the U.S.
You can see the actual recovery period (effective January 1, 2018) in Publication 946 at the link below.
https://www.irs.gov/publications/p946#en_US_2018_publink1000107533
@apollog wrote:....TurboTax still use 40 years.
Can you please explain why it is doing it?
There is a bug in the software, but there is a workaround provided you are using a desktop (CD/Download) version of TurboTax. An override can be made directly on the Asset Entry Worksheet in Forms Mode (see screenshot) and it should not impede your ability to e-file your return.
Ok. I see the work around.
What about the web version. Is there a way to fix it there? maybe to plug-in the correct depreciation amount in form 4562 and/or Sch. E, or increase the property value proportionally to result in the correct depreciation amount - providing it can be changed back in future years.
Thanks.
In regards to the work around in the desktop version. I can get to that specific field, but it does not accept my typing of the override.
@apollog wrote:In regards to the work around in the desktop version. I can get to that specific field, but it does not accept my typing of the override.
Hopefully, you are in the correct worksheet (the Asset Entry Worksheet), but you have to right-click in the box to get the menu options, one of which will be Override (or you can use Ctrl + D).
You will see the number that you enter ("30") in red, which indicates an override.
@apollog wrote:What about the web version. Is there a way to fix it there? maybe to plug-in the correct depreciation amount in form 4562 and/or Sch. E, or increase the property value proportionally to result in the correct depreciation amount - providing it can be changed back in future years.
There is no workaround, of which I am aware, for the Online versions. I cannot recommend changing otherwise correct values for the sole purpose of ameliorating this bug.
With the right click, The desktop work around worked well.
Do you have a date when the web version will be fixed?
Thanks.
@apollog wrote:Do you have a date when the web version will be fixed?
I do not have a date and this error was reported months and months ago. Sorry.
Things for foreign rental property depreciation have changed significantly for 2018 and beyond with the tax law changes from the TCJA passed by congress.
Foreign residential rental property placed in service in 2017 or before is depreciated over 40 years. But if placed in service in 2018 or after it's depreciated over 30 years. As of the date of this post TurboTax still has not updated the TurboTax 2018 program for this. So if you placed foreign residential rental property in 2018 or after, then you flat out can not use TurboTax at all and have no choice but to seek other avenues for completing and filing your 2018 tax return.
As mentioned earlier in this thread, you can use TurboTax for foreign rental property placed in service in 2018 provided you use a desktop (installed) version and do an override on a worksheet in Forms Mode.
I made the change on the desktop version and it works. Also interesting fact is that the AMT numbers were using 30 years to start with.
However, I have 7 states to file with and I am using the freedom version for this. I thought of inflating the cost base of the property proportionally (1.3333 of the original cost) in order to get the annual depreciation right. I assume I can adjust the cost back in future years when the software is fixed.
Is there any problem in doing it? (even if the AMT numbers does not match - because I do not have AMT liability).
Also, is there a way to download the corrected return file from the desktop version and upload it into the web version?
Thanks.
@apollog wrote:Also, is there a way to download the corrected return file from the desktop version and upload it into the web version?
The only way to know for certain would be for you to upload the desktop file into the web version yourself (make sure you back up any original online file you created first).
@apollog wrote:However, I have 7 states to file with and I am using the freedom version for this.
You might be able to do similar overrides for some or all of your state returns. Since you have so many to prepare, you will probably want to print and mail them anyway.
I did not see a place where you upload a file into the web version. I can only see a download.
Can you please direct me to how to do it?
Sorry no. You can not upload a current year Desktop return file to the Online version. You can only transfer a prior year (2017) Desktop file into a new blank current year online version.
You can only download a .tax2018 from online and open it in the Desktop program. One way only, Online to Desktop.
@apollog wrote:I did not see a place where you upload a file into the web version. I can only see a download.
Can you please direct me to how to do it?
I noticed @VolvoGirl just answered. So, as she indicated, no, you cannot upload a current year tax file created in a desktop version into an online version. Sorry.