Turbo Tax did not capture owner-occupied partial rental property's depreciation rom Sep 2013 to Dec 2015.

[bluemoon]

I have been using Turbo Tax since the early 1990s. Extremely disappointed with my current situation.

I live in my primary residence and did a partial rental of rooms from Sep 2013 to Dec 2015.

I was preparing my house for sale and discovered while computing a hypothetical of taxes, that Turbo Tax did not capture owner-occupied partial rental property's depreciation at all. 

I have tried to reach Turbo Tax in the past and despite getting an incident number have not got any call from Turbo Tax representatives. 

This is a shortfall in the software and I don't know what's the best way to proceed forward. I would definitely need an expert's assistance.  Any assistance is appreciated. I would like to get this resolved prior to next year's filings. Thank you.

[Carl]

There is no shortfall in the program on this, and never has been for any tax year. Not ever. It's user error. Let me explain. There are two questions the user is asked when renting out property, be it a completely separate rental property or rooms in one's primary residence. For the latter, people will almost always misinterpret one or both questions resulting in wrong answers. Because of those wrong answers either no depreciation occurs, or the depreciation is *blatantly* way off what it should be.  I'm paraphrasing the two questions here because they're more akin to data entry boxes that are not worded as a question.

 - First, you are asked for the percentage of business use. The percentage of business use is *one* *hundred* *percent*. Even if you rented out part of your primary residence. For the part (or rooms) you rented out if it's 20% of your residence, then that 20% was One Hundred Percent business use.

 - Then you are also asked for the number of days of personal use. That will be ZERO DAYS of personal use. Weather it's a separate rental property or rooms you rent out in your house, during the period of time it was classified as rental property, it was used "ZERO" days for the property owner's personal use for the entire time the property or space was *classified as a rental*. What you used the property or space for before converting it to a rental *does* *not* *count* for anything what-so-ever.

So if you converted the rooms to rental in Sept of 2013, on your 2013 tax return the percentage of business use for those rooms from Sept-Dec of 2013 was one hundred percent business use. The number of personal use days from Sept-Dec of 2013 was ZERO days.

So more than likely you answered those two questions wrong *every year* claiming personal use days as well as less than 100% business use. Your numbers for those two questions were of such that no depreciation was taken because, based on your numbers (which were wrong) depreciation was not required to be taken.

Now with that out of the way, in order to fix this you'll need to file IRS Form 3115 with your tax return. That form *IS* complicated (though it may look simple, it's not) and requires professional help to ensure it's done right. Do it wrong, and it just results in a never-ending nightmare with the IRS from which you may never awaken.

[DoninGA · Accepted solution]

When you were completing the 2016 tax return with TurboTax, in the Rentals and Royalties section you had to tell the software that you were no longer using the rooms as a rental.  Since there was no asset to depreciate in 2016, the software did not prepare a depreciation report for 2016.  The same for tax year 2017 and 2018.

If you saved a PDF of the 2015 tax return to include all worksheets, there will be a Depreciation and Amortization Report which has the total depreciation for the rental rooms from the time you placed them into service as a rental through 2015.  If you do not have the PDF, then you will need to start the 2015 TurboTax program and Continue the 2015 tax return.  Then go to Forms mode and the Depreciation and Amortization Report will be available.

For the home sale you enter the total deprecation to be recaptured where asked in the Sale of Home (gain or loss) section of the TurboTax program.

[tagteam · Accepted solution]

---

@DoninGA wrote:

For the home sale you enter the total deprecation to be recaptured where asked in the Sale of Home (gain or loss) section of the TurboTax program.

---

See the screenshot below for the relevant Sale of Home (gain or loss) screen as @DoninGA indicated in his post. All you really need to know is the total depreciation figure so you can plug that figure into the program.

[bluemoon]

Thank you so much for taking the time out to respond and provide an excellent explanation. They should add this to TurboTax's built-in help and programming workflow.

[bluemoon]

Thank you so much for taking the time out to respond and provide an excellent explanation. They should add this to TurboTax's built-in help and programming workflow. You and another user who responded really put things in perspective.