Basis/Depreciation Adjustment for rental property without override?

Forum|Forum|6 years ago
February 3, 2020
13 replies
100 views

Is there a way within Turbotax to adjust the basis (and consequently the subsequent depreciation) of a 27.5 year property without doing an override? Basis adjustment is needed because of excess insurance proceeds for casualty repair. Proceeds exceeded cost of repair.

If I override I can not file electronically and would like to find a way within the program.

Carl

Level 11

You don't change or adjust anything on your taxes that already exists with an established cost basis. I can make a wild guess on your situation. But that's all it will be is a wild guess based on no facts what-so-ever - which means it'll probably be wrong and totally useless to you. So give me some facts. What happened? Property placed in service in 2010 and in 2019 it burned to the ground and you did a rebuild with the insurance payout? Maybe you lost the roof due to a hurricane and had to replace it? This can be dealt with in TurboTax *IF* you have at least a little bit of a clue of what you're doing. No overrides are necessary and would probably be wrong anyway.

Give me dates, facts and numbers so I'm not guessing here. Then I can help here.

DelbertAuthor

Level 2

- Residential rental property. Purchased 8/3/98. Purchase basis (bldg. only) $80,900
- Depreciation-adjusted basis through 2018 is $20,958
- Had storm damage in 2019, repair cost was $4,100. Insurance reimbursement for damage was $7,100. Reimbursement exceeds repair cost by $3,000
- IRS Pub. 551, p. 5, requires that the asset basis be adjusted (reduced) by the excess reimbursement. The excess reimbursement is not income in 2019.
- IRS Pub. 946, pp. 35 and 36, disallow using the depreciation percentage tables after this adjustment. Depreciation must be manually calculated in this situation. Example on p. 36 shows how to manually figure depreciation in 2019 and subsequent years.

If you believe I am incorrect about the IRS requirements in Pubs. 551 and 946 please explain your reasoning. I would be most grateful to learn I am wrong. But if I am correct, then how to handle?

DianeC958

Level 12

No, you are correct on your information that the cost basis needs to be reduced by the amount you received in reimbursement over the cost of the repairs.

This may be an easier situation to deal with in the TurboTax desktop version since you can change into the forms mode and make changes directly on the forms.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

AmeliesUncle

Level 15

@Delbert wrote:
Is there a way within Turbotax to adjust the basis

Just go into the "asset" for depreciation and change the Basis. And keep the "prior depreciation" the same as it was before.

TurboTax does not use the depreciation 'tables' so you don't need to worry about that.

DelbertAuthor

Level 2

AmeliesUncle, I don't think that is the proper way. IRS Pub. 946 says to:

1. Reduce the current adjusted basis, in my case $$20,958 by the $3,000 excess reimbursement. Year 2019 then starts with an adjusted basis of $17,958. Then,

2. Depreciate the remaining $17,985 evenly over the remaining life of the asset using the manual method in Pub. 946.

AmeliesUncle

Level 15

@Delbert wrote:
AmeliesUncle, I don't think that is the proper way. IRS Pub. 946 says to:
1. Reduce the current adjusted basis, in my case $$20,958 by the $3,000 excess reimbursement. Year 2019 then starts with an adjusted basis of $17,958. Then,
2. Depreciate the remaining $17,985 evenly over the remaining life of the asset using the manual method in Pub. 946.

Hmmm. I think you are right.

I think you should be able to add a new "asset" (and delete the old asset) and get the program to do it correctly.

Use the Adjusted Basis after the casualty ($17,958).
Use the ORIGINAL "placed in service" date.
When it asks for "Prior Depreciation", enter ZERO.
Make sure you are using Straight-Line depreciation and elected out of Bonus Depreciation and Section 179.

That should hypothetically make the program "Depreciate the remaining $17,985 evenly over the remaining life of the asset".