Hi! I have entered my rental property assets in Wages & Income > Rental Properties and Royalties > Assets / Depreciation. This includes my rental property itself, as well as the improvements I've made that are greater than $10k (exceeding safe harbor for small taxpayers requirements). For each asset, Turbotax has calculated out all the depreciation amounts, and reflected it in the Your Property Assets. However, these asset depreciation seems to have no impact on my actual tax summary (no change in refund, all values in tax summary remains the same). And when I exit the section and look at the Assets / Depreciation amount in my rental property summary, it is $0.
Why could asset depreciation not be included in the actual tax deduction?
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It is not common for long term residential rental real estate to show a taxable profit "on paper" at tax file time. In fact, it's more common to actually show a loss. (Line 26 of the SCH E)
Rental income is passive. Therefore, rental expenses (including depreciation) can only be used to reduce your taxable passive rental income. Once it gets that taxable rental income to zero, that's it. You're done. Any excess losses are carried over to the next year.
Typically, when you add up the deductible rental expenses of mortgage interest, property insurance, property taxes, and the depreciation you're required to take, those four items alone will commonly exceed the total rental income received for the entire tax year. Add to that other deductible rental expenses such as HOA fees, repairs, maintenance, etc., and you're almost guaranteed to show a loss.
With the loss carried over each year, those Passive Activity Loss (PAL) carry overs generally increase with each passing year. That's normal. You can't use and realize those losses against other types of income (such as W-2 income) until the tax year you sell.
Now with the tax law changes of 2018, if your AGI is below a certain threshold, you can deduct up to a maximum of $25K from your "other" ordinary income, if you have that "other" taxable income to deduct it from. But not all meet the requirements for this. (Not sure, but I think if your AGI is above $160K, then you don't qualify.)
Even so, any losses left over get carried over to the next year, and you'll see that carry over amount on IRS Form 8582.
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