topic Manual entry of asset depreciation in Deductions & credits

Manual entry of asset depreciation

Anonymous — Thu, 16 Jul 2020 19:23:40 GMT

I'm in the photography business (not a hobby) and have had two different tax professionals list my photography studio—acquired in 2006—as a depreciating asset with a set 27.5-year, SL/MM depreciation schedule. It has been listed with the house and other depreciating camera equipment in the Depreciation and Amortization Report for Form 4562. I've only taken about 1/3 of the depreciation out, and each year the depreciation amount has been within a few dollars, even across the two tax professionals, so there is more depreciation to be had, and I would think it would be about the same amount as the past few years.

My life got less complicated this past year, so I moved to TurboTax for 2019. I'm having trouble continuing this depreciation schedule in the Home & Business Mac version of the software. When I list it as an asset, it selects a 7-year schedule. When I move to Forms Mode, I can't change the items related to this asset. Any suggestions?

Re: Manual entry of asset depreciation

Critter-3 — Thu, 16 Jul 2020 19:34:05 GMT

Ok ... sounds like an Office in Home situation ... if so the portion of the home used for the business should be depreciated over a 39 year period (business use property) not 27.5 year period(residential rental). If that is what you have been doing then you have big troubles.

Re: Manual entry of asset depreciation

AnnetteB6 — Thu, 16 Jul 2020 19:43:45 GMT

Here is a guide for how to go about entering depreciation into TurboTax in order to duplicate the entries that have been made on previous returns to continue the same depreciation.

Starting from the Schedule C or Schedule E section of your return until you get to the Assets/Depreciation section.
Proceed to the point where you adding an asset on the page titled Describe This Asset.
In order to enter the asset exactly as it has been reported in the past, choose the last option on the list, Intangibles, Other Property, then click Continue.
On the next page titled, Tell Us a Little More, select Other asset type, then click Continue.
Enter the detailed information about the asset: description, cost, date purchased or acquired. Click Continue.
Continue with additional details on the next screen, then click Continue.
Select the appropriate Asset Class, then click Continue.
Choose the MACRS Convention, then click Continue.
Select the Depreciation Method, then click Continue.
Answer the question regarding Listed Property, then click Continue. There may be some additional background questions as well, keep going.
You will eventually come to a screen to confirm the Prior Depreciation, enter the data and click Continue.
Finally, you will see an Asset Summary screen with the current year depreciation amount listed. There is also a check-box here to Show Details. This will open a full description for the asset so you can verify that it matches the previously reported information. If it does not, you can choose to go Back and re-enter the data that needs to be changed.

@Anonymous

Re: Manual entry of asset depreciation

AmeliesUncle — Thu, 16 Jul 2020 22:19:53 GMT

I agree with Critter; 27.5 years for an office is wrong. If you have been using 27.5 years you need to go to a GOOD tax professional that knows how to correct things by using Form 3115.

In response to your comment about your camera equipment, there should be a category listed as video, camera, etc. that will properly use 5 years for that equipment.

Re: Manual entry of asset depreciation

Carl — Thu, 16 Jul 2020 23:57:58 GMT

You have a major, and most likely a very costly tax reporting problem - at least you will when the IRS catches it - if you don't fix it first.

For starters, nothing in a SCH C business is depreciated over 27.5 years. Only residential rental real estate gets depreciated over 27.5 years and that's not reported on SCH C.

Commercial business real estate gets depreciated over 39 years - and th at includes a home office in your primary residence *only* if you are the listed and named owner of the property. (You can not depreciate property that you do no own.)

So your commercial real estate, as well as the percentage of your primary residence that is used by you in your SCH C business gets depreciated over 39 years. your photography equipment gets depreciated over 5 years.

Bottom line is, you have an absolute mess. You need to seek professional help yesterday, if not sooner to get this fixed. I myself find it infathomable that you actually had *TWO* so-called "tax professionals" report the same incorrect information to the IRS. Makes me wonder if you asked to see their credentials, and then did the homework on your own to actually confirm the validity of those credentials.

So when you find yet another tax professional to help you get this right, make sure you not only ask to see their credentials, but that you get on the Internet and confirm the validity of those credentials.

As a side note, Don't be surprised if your cost to the IRS to fix this is going to make the cost of yet another "tax professional" seem like a pittance in comparison. If it's high enough, you may want to consider obtaining legal representation to recover your losses that were caused by those flat out wrong tax returns the first two CPA's completed for you.

Re: Manual entry of asset depreciation

Anonymous — Fri, 17 Jul 2020 01:40:05 GMT

i wouldn't use the internet to validate anyone's credentials. you never know what may be fake.

certificates hanging n the walls may be counterfeit or they could be real but don't tell you if this person has been sanctioned and can no longer practice using their professional title.

call your state's department of registration

Re: Manual entry of asset depreciation

drbartoes — Fri, 17 Jul 2020 06:12:13 GMT

These are all well and good . . . following the recommendations exactly. My suggestion is to Section 179 as much of it as you can/want when you buy it. When I bought computer equipment, I had the same types of problem -- a 5 year depreciation schedule. Anyone knows that a computer is not useful for 5 years, so I started with Section 179 fo all of it.

As far as the 'office' goes, my guess is that they treated it as part of the house (house is 27.5 year depr, sched.) I have also found that 'Office in Home' almost never a benefit, since you need to take out all of the deductible parts of your house (taxes, insurance, etc. based on the sq. footage of the office (and lose them from your personal), especially if you might ever want a mortgage, since you need to have income amounts for a mortgage, yet prefer not to pay taxes along the way -- a real conundrum. I can't suggest how to fix it except to not use the standard depr and don't bring it forward from previous TT returns, then try manual. Good Luck!

Re: Manual entry of asset depreciation

Anonymous — Fri, 17 Jul 2020 06:54:57 GMT

you do need to correct the depreciation on any business real property. even the home office is 39 years. only residential real property is 27.5 years. there is nothing wrong economically with taking a HO deduction. you get to deduct a portion of expenses otherwise not deductible. in addition, you get to reduce your adjusted gross income by a portion of your real estate taxes and interest. the rest goes to itemized. even if at that point the standard deduction is higher than itemized, it still can be better than not. your self-employment income goes down which reduces your self-employment tax. personally I prefer bonus depreciation rather than 179. bonus allows you to deduct 100% the cost of qualifying assets in the year placed into service just like 179 but is not limited to net business income like 179 is. 179 also becomes a pain to deal with if you dispose of the asset before it is fully depreciated. no such problem with bonus.

Re: Manual entry of asset depreciation

Anonymous — Fri, 17 Jul 2020 17:07:37 GMT

Does it change anything if it's a mobile studio (e.g., tents, props, backgrounds, lights) or rented studio space (different rooms throughout the year)?

Re: Manual entry of asset depreciation

Anonymous — Fri, 17 Jul 2020 17:24:55 GMT

Fortunately, I submitted my tax forms as many have suggested here and how TT directed me to do it (deadlines have that kind of effect on me), and I'm doing this to see what I would have needed to do to accomplish my original question for future reference. That said, @AnnetteB6, the instructions worked fine for me through the additional details, but when I click Continue to get to the Asset Class, that is not what shows up. Instead, it goes straight to the recovery period, and what shows up later in the summary is that the MACRS Convention is "NA". Any thoughts?

Re: Manual entry of asset depreciation

AmeliesUncle — Fri, 17 Jul 2020 17:59:46 GMT

@Anonymous wrote:
Does it change anything if it's a mobile studio (e.g., tents, props, backgrounds, lights) or rented studio space (different rooms throughout the year)?

Yes, but in no situation at all would it be depreciated over 27.5 years.

As for the fact you said you now submitted it, that messes thing up even more. You REALLY should have gone to a good tax professional to fix things.

And for how to enter it, in your situation there should NOT be a need to enter it as an "other" asset. There are correct categories that fit your situation.

Re: Manual entry of asset depreciation

Carl — Sat, 18 Jul 2020 00:07:24 GMT

Rarely is a home office depreciated over 27.5 years. Here's what in IRS Pubplication 946

Office in the home.If your home is a personal-use single family residence and you begin to use part of your .home as an office, depreciate that part of your home as nonresidential real property over 39 years (31.5 years if you began using it for business before May 13, 1993). However, if your home is an apartment in an apartment building that you own and the building is residential rental property, as defined earlier under Which Property Class Applies Under GDS, depreciate the part used as an office as residential rental property over 27.5 years. See Pub. 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home

Re: Manual entry of asset depreciation

AmeliesUncle — Sat, 18 Jul 2020 00:22:06 GMT

Good point Carl. So if you own a building and are collecting rent from tenants who live there, then your Home Office MIGHT qualify for 27.5 years.

Re: Manual entry of asset depreciation

Anonymous — Mon, 20 Jul 2020 19:45:58 GMT

Hindsight is 20/20. Excellent credentials and highly recommended by several financially-sophisticated families in the area. Not all mistakes are preventable.

Re: Manual entry of asset depreciation

Carl — Mon, 20 Jul 2020 21:13:53 GMT

@AmeliesUncle I didn't delve into pub 587 to see what those tests are that have to be met though. So I don't know what would be correct if say, you lived in one side of a duplex as your primary residence where you claimed a home office for your SCH C business, and rented out the other unit reported on SCH E.

Re: Manual entry of asset depreciation

AmeliesUncle — Mon, 20 Jul 2020 21:52:44 GMT

If 80% or more of the rents are from "dwelling units", then the entire building is Residential (27.5 years) for the owner of that building. If it is less than 80%, the entire building is Nonresidential (39 years) for the owner of that building.

And note that is "for the owner". So just because you live in an apartment building (residential) that you DON'T own, does not make your home office residential over 27.5 years.

But you taught me an interesting thing. In the case of a duplex (or more than one unit), YES, the owner can use 27.5 years for the Home Office. As long as part of the building is rental, then that subjects it to the 80% rule which includes the rental value of your own residence (a single residence that does not rent out can not use that rule, even if your personal portion is 80% or more). So if 50% is rented out and the rental value of your personal-use portion is 30% or more of the building, yes you can use 27.5 years.

https://www.irs.gov/pub/irs-wd/0526002.pdf

So in some cases 27.5 years *IS* correct. But only if you rent out part of the building to somebody else for their living quarters.

Re: Manual entry of asset depreciation

mo_56 — Tue, 13 Apr 2021 01:14:27 GMT

I have followed the instructions of AnnetteB6 to manually change information but still cannot change what I need to. We had a professional company do our taxes while we were working internationally. When we came home I bought a piano at the end of 2016 and put it into service in 2017. They did our taxes for 2017 and set up the depreciation schedule for my piano teaching business. As we were reviewing our 2020 taxes, done with Turbo Tax, he noticed that our depreciation was very high. Looking back to 2018 and 2019 we also did with TurboTax we have discovered that the professional company set it up with a basis reduction of half the amount of the unadjusted basis of the piano for 5 years and TurboTax leaves it at full unadjusted basis. We did not catch this previously as I assumed the software was doing what I needed it to do. I went through all your steps but I cannot see anywhere in TurboTax how to account for the basis reduction. Can you help me figure out how to do it? I need to amend the previous years before I finish 2020. Thank you.

Re: Manual entry of asset depreciation

ThomasM125 — Tue, 13 Apr 2021 22:36:22 GMT

You have to edit the asset and change the cost to what it should have been when originally placed in service. TurboTax will automatically calculate the allowed accumulated depreciation and the depreciation for the current and future years will be correct. You will then have to amend the returns for the previous years.

Re: Manual entry of asset depreciation

mo_56 — Thu, 15 Apr 2021 00:54:15 GMT

Thank you for your response. We were reading the IRS booklet and saw that if you have done a depreciation incorrectly for two years you can continue doing what you set up. Is this your understanding? Also, when I did the 2018 taxes I put in that I had taken a 179 deduction but in studying the depreciation schedule for 2017 from the professional CPA I do not see that they did a 179 deduction. I guess I was confused because the schedule C asks for depreciation and 179 deductions on the same line. Due to COVID I only made 405 dollars for the year and am not sure I will continue teaching piano after this. Can I just take the piano out of service at the end of March, use the quarter of depreciation or no depreciation at all and not have to worry about amending the 2018 and 2019? It was set up for a 5 year depreciation, then Turbo set it up as a 10 and this year is my fourth year. I hope this makes sense because I am so confused right now. I thought TurboTax offered more one on one support and am a little disappointed with what has happened to our tax situation. Thanks for any help you can offer.

Re: Manual entry of asset depreciation

AmeliesUncle — Thu, 15 Apr 2021 22:59:47 GMT

@mo_56 wrote:
put it into service in 2017.

the professional company set it up with a basis reduction of half the amount of the unadjusted basis of the piano for 5 years and TurboTax leaves it at full unadjusted basis.

The asset qualified for the Special Depreciation Allowance. That took 50% of the expense the first year, then the other 50% was spread out over 5 years. When you set it up in TurboTax, you must have not indicated it had qualified for the Special Depreciation Allowance, so it was using your 100% of the cost.

Form 3115 does not apply for using the incorrect Basis for depreciation. To correct things, you should amend the incorrect years.