TurboTax is making me depreciate a foreign rental property over 27.5 years. Should it not be 40 years? I've made sure I entered a foreign address.

[Xin123]

Thank you Dave for you explanation. I can see my rental property purchased last year in foreign Country are depreciated in 30 year. However, I am a bit confused with the depreciation method it listed as following:

Years to fully depreciate:30.0 years

MACRS Convention: MM

Depreciation Method: ALT

Do you mind explaining a bit more what ALT and MM means, and is it any different from ADS?

Very much appreciate you help!

[ToddL99]

"ALT" is an improper abbreviation for the Alternative Depreciation System (ADS)  (see the link for a definition).

"MM" is the correct abbreviation for the Mid-Month Convention (see the link for a definition).

The mid-month convention states that all fixed asset acquisitions are assumed to have been purchased in the middle of the month for depreciation purposes. Thus, if a fixed asset was acquired on January 5th, the convention states that you bought it on January 15th; or, if you bought it on January 28, still assume that you bought it on January 15th. Doing so makes it easier to calculate a standard half-month of depreciation for that first month of ownership.

[atavakoli13]

Hi, I have a foreign rental condo in Canada that I purchased in 2014 as my personal home. I moved to the US in Feb 2019 and began to rent out this apartment. I am confused about how I should be depreciating this asset. Last year when my taxes were professionally filed, it was the first year that the apartment was being rented and for depreciation it was assumed to have a life of 39.5 years using a half year method under the Alternative Depreciation System. When I go to enter my information in Turbotax this year, it gives me a recovery period of 27.5 years. Can someone please explain what the correct depreciation should be and also what happens if the recovery period changes this year from last? Turbotax is not letting me adjust the 27.5 years. I know that the depreciation differs based on US versus foreign property and if put into use before 2018. Any help would be much appreciated.

[Carl]

Hi, I have a foreign rental condo in Canada that I purchased in 2014 as my personal home. I moved to the US in Feb 2019 and began to rent out this apartment. I am confused about how I should be depreciating this asset. Last year when my taxes were professionally filed, it was the first year that the apartment was being rented and for depreciation it was assumed to have a life of 39.5 years using a half year method under the Alternative Depreciation System.

Nope. Because the property was placed in service as a rental "after" 2017, it gets depreciated over 30 years.

When I go to enter my information in Turbotax this year, it gives me a recovery period of 27.5 years.

That's because in the property profile section you did not change the default selection from United States or U.S. Possession, to Foreign Country. Work back through the property profile section again and make that change. You "may" have to delete/re-enter the property in the Assets/Depreciation section to, so it will pick up the correct MACRS depreciation period of 30 years.

Can someone please explain what the correct depreciation should be and also what happens if the recovery period changes this year from last? Turbotax is not letting me adjust the 27.5 years.

Since 2019 was the first year the property was placed in service, there's really no need to amend that return.  Just make sure when you enter the asset on your 2020 return with an in service date of whatever month in 2019, you correct the prior year's depreciation to the amount that was actually taken on the 2019 return. Then TTX 2020 will adjust the 2020 depreciation accordingly and get you on the right track.

I know that the depreciation differs based on US versus foreign property and if put into use before 2018.

According you you, the property was placed in service as a rental in 2019. Therefore the depreciation period is 30 years.

[Xin123]

Hi Tod,

Thank you very much for your explanation.

I am trying to depreciate some asset in Appliance, Carpet, Furniture Carpet category using turbo tax, it gives me the option to use either Half-year convention or mid-quarter convention. Do you know which one applies for rental property?

Thank you

Xin

[Carl]

When entering the appliance assets, select "Rental Real Estate Property" on the first screen. Then select "Appliances, carpet, furniture" on the 2nd screen.  The program does not ask you for the convention because it already "knows" the correct convention to use, based on your acquisition/in-service date.

Also note that the SEC179 deduction is not allowed for this. I know you see the option available in the program. That's because if you were renting "commercial" rental real estate, then SEC179 would be valid. But it's not valid for "residential" rental real estate. Besides, the 100% Special Depreciation Allowance allows basically the same thing anyway.

Overall though, I expect you'll find that depreciating the appliances separately isn't going to make a penny of difference to your tax liability anyway. But you most certainly can do that if you want to. It does have the potential to become a paperwork nightmare if/when one of those appliances breaks and you have to replace it. Also, if you purchased the house with those appliances already there, then whatever cost basis you assign to the appliances, you have to subtract from your cost basis of the property.

[isamom1982]

@Carl I have foreign rental property since 2007 and 2005 respectively that I depreciated on TT for years but now need to completely re-enter**.  However, I can not figure out how to get my old 40 year ALT/MM depreciation data to show up correctly in the Form 4562.  I tried to change things vis step-by-step as instructed (also in this forum) and via "Form View" but It does not allow me to choose the setting combination from the previous years.  For example, it  forces a choice of "asset class" and when I choose "Residential rental" (which it is, then that forces 27.5 years, etc. - If I force that to 40 years manually, the Asset Class box turns red and the warning icon pops up next to the form...WHAT CAN I DO??

I have depreciated them through the TT program without issues for years.  Due to the conventions back then , the depreciation period was 40 years and the parameters that show on Form 4562 show Method/Convention SL/MM. A fews ago I also had PWC look over my taxes and they confirmed this was correct.

** The reason for the re-entry need is that - like for many others - my 2021 TT Home & Business desktop edition Amort & depreciation area is constantly showing "Still under construction" and the only help the TT agents can provide after over 5 hours (yes, that is FIVE) is to do a "clean install" and not import any of my historic data.

[isamom1982]

@Carl , @ReneeM7122 ... and forgot to add:  YES, I do check in the step-by-step that this is rental property OUTSIDE the US (on that check list) in ADDITION to also clicking on the foreign address entry and entering that.

Thanks a lot for your help!

[Carl]

Since you've done a clean install, all you can do is try the import again and see if it works. Just make a backup of the existing .tax2021 file in the documents/turbotax directory. Then delete the .tax2021 file from the documents/turbotax directory. Then fire up the program and import. See if it's done so correctly. If it has, then life is good and you can press on.
if it does not import correctly, then I can only suggest you contact support again for a refund, as you just flat out will not be able to use TTX for your 2021 tax return. That's the bottom line. I've even checked if 40 years is an option if you enter it as "other" in the assets/depreciation section. 40 years is not an available selection.

Note that if you did not purhcase your CD installation directly from TurboTax, then you will have to seek your refund from the vendor you purchased it from.

Note that you are not the only one I've seen with this specific issue. So far, there seems to be no fix from TurboTax, and at this point I doubt there will be one out in time, this late in the filing season.

[isamom1982]

@CarlDo you know if the IRS accepts a mail-in paper return that is 90%+ typed and the rest filled in by hand (or typed but with a good two dozen hand-written strike-through and overwrite corrections)? 

I tried to import my 2021 on the clean install together with TT tech - It, again, did not work. completely. However, I can see ALL my tax entries correctly print as Form PDFs - except for some errors/omissions in the Home Office Depreciation area (F 8829 and the respective line in Schedule E) and some of the Form 4562 Depreciation tables are wrong and the respective lines in Schedule E, too.

[Carl]

I don't know for a fact. But I would expect the IRS to have issues with "strike throughs" on a paper filed return. What you can do is go ahead and print it for mailing. Then for those forms you need to change entries on, download a blank form from the IRS website and fill it out by hand with the correct information. They won't have any issue with some being typed and some hand written, so long as your signature and date is on the 1040.

To get blank forms, what I do is google the form number followed by PDF. For example, to get a blank for SCH E I'll enter "IRS FORM SCHEDULE E PDF" as my search term. for an 8832 I'll enter "IRS Form 8832 pdf" as my search term  Usually, one of the first three or so links will be the actual form in PDF format. I can save that blank form to my computer and then print it out.

[isamom1982]

@Carl BTW I 'messed around' with all questionnaire options in the step-by-step until I finally got TT to reflect a 40 year life ALT/MM for the depreciation - without flags in the form.  HOWEVER, when I then wanted to add a second property - following the exact same steps - TT only let me progress up to depreciation and then put up that dreaded "Under Construction" notice.  So it did one but not a second property.  Something is definitely very, very wrong with the 2021 edition / Depreciation!!

I wonder how I could even use TT in 2022 with a paper filed gap in the middle... and whether I want to touch TT ever again.

[Carl]

What could be wrong, here?

My guess is, while it may be "showing" a 40 year depreciation, it may be actually calculating based on 39 years.

[isamom1982]

@Carl I fiddled around long enough and got it all back to where it was: The correct 40 years for Residential real Estate abroad with ALT/MM settings.  All good. The key is in using FORM view and entering everything directly there (including the generation of new forms needed) versus using step-by-step, which handles it wrong.  That happens quite frequently in T, I noticed.  Also the case for Forms 1116 if you have to cover more than 3 countries or have one 1099 provider giving you multiple country codes.  Or Form 8615 (that only asks for the parent's income but not if they have a sibling or if the parents had qualified dividend payments, etc., which all influence the tax calculation).

The result is that the tax calculation when using step-by-step is not possible (former case/form) or wrong (latter case/form). To get it right you HAVE to use the FORM view and make sure you fill out all relevant fields there.

[Carl]

Just be aware that by having done things in forms mode, you will probably be unable to e-file.