Form 4797 incorrectly handling data provided

[rda245]

Form 4797 is Sale of Business Property 

-- including real property

-- There are four "Parts" -- only two are relevant here 

Part 1 is entry of key data (primarily for Long Term holdings) -- TT collects this properly

             Part 1 then goes on to determine Gain and you can go from this part direct to Schedule D

              TT does not show these lines

Part III -- is for disposition of properties where there is "accelerated" (per IRS) depreciation 

             -- such depreciation is converted to regular income

             --- the SOLE exception is if the depreciation was taken straight line

                       over an extended period (20+ years)

              -- TT does NOT ask how you took your depreciation

              -- TT just goes to Part III and assumes your depreciation is taxable

 The result is that they complete Part III automatically and end up with 

               -- Capital Gains -- correctly

               -- AND "unrecaptured section 1250 gain" (Worksheet for Sched D line 19)

                    that is NOT correct -- if you took the depreciation straight-line

                    and for a property you held for 31 years -- that can be a big number

That then flows to the Sched D tax worksheet to determine taxes due on 1040 line 16

Instead of the Qualified Dividends & Cap gains worksheet feeding that line

The result is a increase of ~10% in taxes due

How do I fix this?

-- I do not see any way to adjust the handling of the data input into Form 4794 

If I can't fix it, how is TT going to fix it. 

Thank you

Bob 

[KrisD15 · Accepted solution]

No, that is not quite correct. 

What you are reading about "straight line" is when an asset drops to under 50% business use and you had taken Bonus or Accelerated deprecation on it previously. 

In that case, you have to figure the straight-line depreciation and claim the excess that year. 

For example, you buy a car for 30,000 and use it 75% business. You take Bonus Depreciation and claim 50% the first year which is 15,000. 

The next year the use drops to 20% business and 80% personal. You would have to recalculate the depreciation to straight-line which would be 6,000 per year. So 6,000 the first year and 6,000 the second year. That's 12,000. You already claimed 15,000 so THAT year you would have to claim 3,000 as income.

You continue using the vehicle less that 50% for two more years, each year taking 6,000 and decide to sell it. 

Your adjusted basis is 30,000 - 24,000 (depreciation) = 6,000

You sell for 10,000

You have 4,000 depreciation recapture which is ordinary income. 

It it became a classic and you sold it for 32,000 you would have 24,000 ordinary income and 2,000 Capital Gain. 

Depreciation Recapture 

[rda245]

Chris, 

Thank you for your response.

Between my post and now I spent some additional time researching this and now understand what was happening.

TT calculated my Cap Gain absolutely correctly.

It is IRS that forces them to use the "Unrecaptured" Worksheet that calculates line 19 and -- at least in my situation -- the number calcuated and put on Line 19 is actually _not_ used in the next worksheet

("Sched D Tax) which calculates the taxes due. 

I do not know why that is the pathway the IRS chose -- but the numbers come out right. 

Thank you for taking the time and responding to my question. 

Best, 

Bob