Vacation rental: Schedule E shows zero depreciation for multiple years but Smart Worksheet shows large “prior year non-deductible expenses” carryforward — normal?

[TylerRoadie]

I have a mixed-use vacation rental (placed in service in late 2020). I’ve used TurboTax each year.

What I’m seeing:

• Schedule E line 18 (depreciation):
  • 2020: depreciation shown (small amount)
  • 2021–2024: 0 depreciation each year
• TurboTax Smart Worksheet shows a growing carryforward:
  • “Prior Year Non-Deductible Expenses” (~$119,000 total)
  • broken into vacation home depreciation carryover + operating expense carryover

Context: 2020 was a partial year (owned ~1 month), so income was low but expenses and some depreciation existed.

---

My confusion / concern:

1. Is it normal for depreciation to show as zero on Schedule E for multiple years in vacation rental / mixed-use cases, even when the property is still active?
2. Does TurboTax sometimes move depreciation and losses into worksheet-based limitation tracking instead of showing them directly on Schedule E?
3. Most importantly:
   Are these Smart Worksheet carryforwards actually transmitted to the IRS in filed forms (e.g., Form 4562 / Form 8582 calculations), or are they mainly internal TurboTax tracking that does not appear explicitly in the return?

I’m trying to understand whether:

• this is fully reflected in IRS-filed forms even if not visible on Schedule E, or
• there is a risk I am only seeing internal software tracking without proper carryforward substantiation on filed returns.

[M-MTax]

The IRS does not see those smart worksheets (or anything else specifically stated to be retained for your records). Further, depreciation deductions, being a "phantom expense", is one of the first to abate when you have zeroed out your rental income.

I'll page another forum member experienced with TurboTax and this particular issue for further input.

@AmeliesUncle 

[AmeliesUncle · Accepted solution]

---

@TylerRoadie wrote:

1. Is it normal for depreciation to show as zero on Schedule E for multiple years in vacation rental / mixed-use cases, even when the property is still active?
2. Does TurboTax sometimes move depreciation and losses into worksheet-based limitation tracking instead of showing them directly on Schedule E?
3. Most importantly:
   Are these Smart Worksheet carryforwards actually transmitted to the IRS in filed forms (e.g., Form 4562 / Form 8582 calculations), or are they mainly internal TurboTax tracking that does not appear explicitly in the return?

I’m trying to understand whether:

• this is fully reflected in IRS-filed forms even if not visible on Schedule E, or
• there is a risk I am only seeing internal software tracking without proper carryforward substantiation on filed returns.

---

1) Yes.

2) Yes.

3) No, it is only internal worksheets.  That makes it critical that you keep a copy of the "Schedule E Wks" for your own records.   I wish the IRS would set up Schedule E for these carryovers, but it doesn't, so it is extremely important that you keep your records.  It is also critical to know what your carryovers are if you change to a different software (or use a tax professional) in the future.

[TylerRoadie]

Just to confirm/clarify how TurboTax Online stores prior-year information, so I have two related questions.

First, since I switched from TurboTax Desktop to TurboTax Online about 10 years ago, I had assumed I would still be able to access prior-year worksheet-level detail (as I could in Desktop), such as for my rental property activity since 2020. However, I am not seeing any way in the Online interface or downloaded PDFs to retrieve prior-year Schedule E worksheets or Smart Worksheets.

(1) Is there any way in TurboTax Online that I’m missing to access or download prior-year worksheet-level detail (beyond the standard tax return PDFs)?  I think you are implying there is not?

If the answer is no, then my second question is:

(2) If I use TurboTax expert support or paid review, do they have any additional access to prior-year underlying worksheet data (depreciation detail, carryforwards, Schedule E worksheets), or are they limited to the same return-level PDFs and data that I can already see?

I’m trying to understand whether this is:

a feature I’m not finding, or
a limitation of how TurboTax Online stores and exposes historical data, even to experts/
(3) Does TurboTax Online clearly recommend downloading and storing the worksheets each year - as you suggest?  I seem to have missed it for a few years...

[VolvoGirl]

There is a difference between Online and Desktop.   

The actual Form 4562 that is filed with your return is just a Summary of the Depreciation for the current year and only lists out the new assets and not the prior the items. You may have a 4562 Depreciation and Amortization Report which does list all the items including fully depreciated items. 

If you don't have the 4562 Depreciation and Amortization Report or need more info you need the Asset Life History. The history is only available in the Desktop program using Forms Mode and  not in the Online version. If you are using the Online version you would have to download your .tax20yy file and open it in the desktop program.

[M-MTax]

---

@TylerRoadie wrote:

...Does TurboTax Online clearly recommend downloading and storing the worksheets each year...

---

I'm uncertain as to whether or not the program (or Intuit) actually recommends it, but it is absolutely best practice to download, and store on various media, PDFs containing all forms, schedules, and worksheets.