TurboTax Desktop has support for making a section 1.168(i)-6(i) election on Form 4562 (Depreciation and Amortization) in the 'forms' view on the Asset worksheet. This is the taxpayer election is to combine the exchange basis and excess basis together into a new single new basis with a new depreciation schedule, and treat the entire replacement property as newly acquired on the date it is placed in service.
However, the tax software does not seem to have any field in the State Depreciation section of the asset form to specify prior special depreciation, which is still disallowed by the state. You would lose your additional depreciation on the state return if you don't account for this, but still be liable to pay any state depreciation recapture tax on it when the property is ultimately disposed in a taxable sale.
Honestly, it is really surprising to me that prior depreciation (regular or special) cannot be specified in the year the property is placed in service even for federal purposes after making this depreciation election. I realize that would normally be inconsistent, but with this election it's relevant and important because all prior depreciation still needs to be tracked for federal depreciation recapture tax one day.
How is it recommended to specify prior regular depreciation and special bonus depreciation after a 1031 exchange when the taxpayer opt-out election for depreciation is selected? I'm doing a lot of silly, clumsy things in the software to make the numbers come out right, but I can't believe there isn't a better way?
