Depreciation Calculation for rental to personal use to rental property again

[AmeliesUncle]

Just to be clear, TurboTax asks for two number, the Basis (building PLUS land combined), and then the land.  The program will automatically subtract the land from the total Basis to arrive at the depreciable Basis of the building.

[walkerkc2]

Yes, and I added the land cost back  in to the figure I input. Just double-checked it all in "asset summary." Entered cost basis as 571176 (purchase price -depreciation + new roof and kitchen) and 227915 so that 343261 is clearly the adjusted cost basis. However, when I check form 4562, line 19h says 257,926 is the "basis for depreciation."

[walkerkc2]

Just double-checked it all in "asset summary." Entered cost basis as 571176 (purchase price -depreciation + new roof and kitchen) and 227915 so that 343261 is clearly the adjusted cost basis. However, when I check form 4562, line 19h says 257,926 is the "basis for depreciation."

[Carl]

Converted back to rental on 1 April 2020

The "only" correct way to do this on the 2020 tax return is as follows:

You *MUST* reduce your cost basis of the property by the amount of depreciation already taken on the property. Take note that only the cost of the structure will be reduced by the amount of depreciation already taken on that structure. Since land is never depreciated, the cost of the land remains the same.

Then you will enter this into the 2020 TurboTax program, and depreciation over the next 27.5 years starts all over from year 1, using the reduced cost basis.

[walkerkc2]

I just figured out what Turbotax did.  It multiplied my 343261 adjusted cost basis by .7514 (placed in service on 1 April, so used 75.14 % of the year) to get 257,926 as the "basis for depreciation." However, 257926 divided by 27.5 year life S/L is 9379.14 depreciation for 2020. Turbotax depreciation deduction is 6644. Why?

[AmeliesUncle]

When it asks for how many personal days you used the property, are you saying ZERO?  You should be (read that screen carefully).

[Carl]

However, 257926 divided by 27.5 year life S/L is 9379.14 depreciation for 2020. Turbotax depreciation deduction is 6644. Why?

Because that's not the way the IRS says you are required to do this. The required method is detailed in IRS Publication 946 at https://www.irs.gov/pub/irs-prior/p946--2019.pdf

For residential rental property, use the MACRS worksheet on page 38, and table A-6 on page 72 applies.

[Anonymous_]

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@walkerkc2 wrote:

,,,,, 257926 divided by 27.5 year life S/L is 9379.14 depreciation for 2020. Turbotax depreciation deduction is 6644. Why?

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The program is using the mid-month convention for depreciation so your property is treated as having been placed in service on April 15, 2020.

[walkerkc2]

Mid-month convention explains  the 257296 depreciable basis. It does not explain how Torbotax got 6644.  The only way to get 6644 is to decrease my adjusted basis (343261) by 75% and then decrease the associated first year's depreciation (9379.14) by71%. This is double counting. I think that Turbotax has an algorithm error.

[walkerkc2]

Great answer -- I am getting closer. Using Pub 946, TableA-6, I use 2.576%. My 227915 basis for depreciation x >02576 = $5871. Turbotax calculated $6644. Which is correct?

[AmeliesUncle]

Look for the worksheet call "Depreciation and Amortization Report" (you will need to pay for the software first).   That shows the details about each asset for depreciation.

Take a screenshot of that (or take a picture of it), erase any private information (your name, social security number, etc.), then post it here.

[walkerkc2]

Unable to copy the form into this window. Form 4562 says:

date in Svc    Cost (net land)     Land          Bus Use %   Sect 179     Spec Depr Allow    Dep Basis     life         

04/01/20       343,261                 227,915      75.14                  0                      0                      257,926      27.5      

.

 method    prior depr         current depr   

   SL/MM         0                       6,644

[AmeliesUncle · Accepted solution]

It specifically says "business use 75.14%" which is wrong.

(1) Go back through the asset, and verify that you entered that it is being used 100% for business.

(2) Go back through the rental section and look for the question that asks for how many days you used the property for personal-use.  Verify you entered ZERO personal days.

[walkerkc2]

That fixed it -- thanks! One last issue and I am done. My Turbotax smart worksheet schedule E for this property says on line M that "Vacation Home Depreciation" is 55518. While it is true that when I rented this property from 2003-2015 I had 55518 in passive loss carry-overs from depreciation that I was not allowed to deduct, this has never been a vacation property. I entered this amount when asked in the step-by-step If I had passive loss carry-overs from prior years. How do fix the inaccurate label as "vacation home depreciation?

[AmeliesUncle]

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@walkerkc2 wrote:

. I entered this amount when asked in the step-by-step If I had passive loss carry-overs from prior years. 

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I suspect you entered it wrong.  Go back through the step-by-step interview and look for that question again.