Deductions on Depreciation

[RicMak57]

Hello Everyone,

                              First post here.

This is the 2nd year I'm doing my taxes on Turbo T.

I have a couple of questions on this depreciation deductions.

k you can lower the price you paid for the prop-?

1) Say the prop- cost you 100K and you depreciate the building for 10 years at $3K per if you selling the prop on year 11 do you have to pay 33K in taxes?

2) If you pass that same prop to your daughter it triggers a new depreciation for the 27.5 years for her?

#) How you can joggle the business percentage value on Turbo to lower the amount of depreciation.

I don't think you can lower the price you paid for the prop-?

Thanks in advance.

[tagteam · Accepted solution]

You cannot simply lower the price you paid for the property to reduce the depreciation deductions. You have to use your actual cost basis.

With respect to the sale of the building, it is either residential real estate and the recovery period is 27.5 years or it is nonresidential real estate and the recovery period is 39 years. When you sell the property, you will have what is called unrecaptured section 1250 gain to the extent of accumulated depreciation deductions allowed or allowable. That gain is taxed at ordinary income rates up to a maximum rate of 25%.

If you transfer the property to your daughter during your lifetime, she will take your basis, holding period, and accumulated depreciation on the property.

You cannot indiscriminately "joggle" the business percentage value to gain a tax advantage.

Frankly, the type of questions posed in your post indicate that you should consult with a tax professional.

[RicMak57]

Thank you for your input.

That is exactly what I'll be doing hiring a CPA.

[ThomasM125]

The issue is actually rather straight forward and can be handled in TurboTax. 

All you need to do is enter the asset in the asset/depreciation section in TurboTax when you enter your business expenses. If you dispose of the asset by selling it or giving it away, you just need to indicate that when asked in TurboTax and the program will ask you to enter information to allow for any tax on the disposal to be accurately reflected on your tax return.

If you realize a gain on the disposition of the asset, you will pay tax on that gain by either applying a capital gains tax rate to the gain or an ordinary tax rate to the gain. However, you don't simply get taxed on the depreciation that you have taken, that amount is just used to determine the rate of tax on the gain.