Out of state resident owning a rental property in Arkansas

[harlan]

I have claimed bonus depreciation on my Federal return last year in regards to this AR rental property (purchased via a multi-state DST investment).  AR does not recognize bonus depreciation, so am I supposed to manually account for this in the AR return by deducting it from my federal depreciation amount?   I do not believe TT is handling this bonus deprecation adjustment from my Federal to AR return.  Also, wouldn't I have the option to depreciate the assets in a non-bonus depreciation fashion on my AR return?  Why does TT not handle this?  Any help would be appreciated. Thanks.

[ThomasM125]

Yes, you have to manually adjust your federal depreciation on your Arkansas return. When you review your state tax return for Arkansas, you are instructed to enter an adjustment to bring your federal depreciation deduction in line with what should appear on your state tax return.

You can depreciate your assets using any method allowable in Arkansas, and enter an adjustment to reflect that on your Arkansas return.

[harlan]

Thank you for the response.  I believe the adjustment would be for IRS Schedule E, but I understand in general what you getting at here.  My question is what doesn't Turbo Tax handle these AR depreciation differences from the federal return?  It is a fact that AR doesn't recognize federal bonus depreciation, so why doesn't TT recognize that I am claiming something that the State does not allow?  Additionally, do I have to come up with my own depreciation schedule for AR  and keep these records separately from TT?   I am just frustrated that I have to figure out the tax code and then figure out how to get TT to handle it as well.  It seems like the AR product is lacking, especially when I compare to my home state of CA's product.   Any clarification would be great.  Thank you!

[MarilynG1]

Check Form 4562, Line 14, for the amount of Bonus Depreciation you claimed on an Asset.

If you placed the asset in service in 2021, it would show on Form 4562 for that year, which you would subtract from Federal amount to report to Arkansas that year.

After 2021, your Federal depreciation and AR depreciation will be the same, since you subtracted the Bonus Depreciation in 2021 when the asset was placed in service. 

Here's more info on Depreciation of Business Assets. 

[harlan]

Thank you, Marilynn.   I am a little disappoint that Turbo Tax doesn't handle this for me in Arkansas.  In comparison, it creates depreciation schedules for California (my home state) that figure out the differences between Federal and CA depreciation.   Can you confirm if I am indeed on my own to figure out the differences in depreciation between federal and my non-resident AR return?    Also, would I not be better off to depreciate the federal "bonus depreciation" assets in the conventional manner for my AR return as opposed to just deducting the "bonus depreciation" from my AR return and calling it good?  I appreciate your help. 

[AmyC]

Bonus depreciation is only calculated in the first year. Yes, you will need to adjust based on AR depreciation allowed. AR uses the MACRS method for property. A rental house would be 27.5 years. 

You can figure the full amount allowed for AR instead of taking what is on the federal which has already had the bonus removed.

See About Publication 946, How to Depreciate Property - IRS

[harlan]

Thank you Amy.  Does anyone have any insight as to why TT does not handle this depreciation difference between the IRS and Arkansas?  It seems like it should. It does for my CA return.  It makes one question what else TT is not handling.

[AmyC]

You made me look. Iowa is the same scenario with bonus depreciation. Here you go -  Tax situations TurboTax does not handle.