Manual entry of asset depreciation

[AmeliesUncle]

If 80% or more of the rents are from "dwelling units", then the entire building is Residential (27.5 years) for the owner of that building.  If it is less than 80%, the entire building is Nonresidential (39 years) for the owner of that building.

And note that is "for the owner".  So just because you live in an apartment building (residential) that you DON'T own, does not make your home office residential over 27.5 years.  

But you taught me an interesting thing.  In the case of a duplex (or more than one unit), YES, the owner can use 27.5 years for the Home Office.  As long as part of the building is rental, then that subjects it to the 80% rule which includes the rental value of your own residence (a single residence that does not rent out can not use that rule, even if your personal portion is 80% or more).  So if 50% is rented out and the rental value of your personal-use portion is 30% or more of the building, yes you can use 27.5 years.

https://www.irs.gov/pub/irs-wd/0526002.pdf

So in some cases 27.5 years *IS* correct.  But only if you rent out part of the building to somebody else for their living quarters.

[mo_56]

I have followed the instructions of AnnetteB6 to manually change information but still cannot change what I need to. We had a professional  company do our taxes while we were working internationally. When we came home I bought a piano at the end of 2016 and put it into service in 2017. They did our taxes for 2017 and set up the depreciation schedule for my piano teaching business.  As we were reviewing our 2020 taxes, done with Turbo Tax, he noticed that our depreciation was very high. Looking back to 2018 and 2019 we also did with TurboTax we have discovered that the professional company set it up with a basis reduction of half the amount of the unadjusted basis of the piano for 5 years and TurboTax leaves it at full unadjusted basis.  We did not catch this previously as I assumed the software was doing what I needed it to do. I went through all your steps but I cannot see anywhere in TurboTax  how to account for the basis reduction. Can you help me figure out how to do it?  I need to amend the previous years before I finish 2020.  Thank you. 

[ThomasM125]

You have to edit the asset and change the cost to what it should have been when originally placed in service. TurboTax will automatically calculate the allowed accumulated depreciation and the depreciation for the current and future years will be correct. You will then have to amend the returns for the previous years.

[mo_56]

Thank you for your response. We were reading the IRS booklet and saw that if you have done a depreciation incorrectly for two years you can continue doing what you set up. Is this your understanding? Also, when I did the 2018 taxes I put in that I had taken a 179 deduction but in studying the depreciation schedule for 2017 from the professional CPA I do not see that they did a 179 deduction.  I guess I was confused because the schedule C asks for depreciation and 179 deductions on the same line. Due to COVID I only made 405 dollars for the year and am not sure I will continue teaching piano after this. Can I just take the piano out of service at the end of March, use the quarter of depreciation or no depreciation at all and not have to worry about amending the 2018 and 2019? It was set up for a 5 year depreciation, then Turbo set it up as a 10 and this year is my fourth year. I hope this makes sense because I am so confused right now. I thought TurboTax offered more one on one support and am a little disappointed with what has happened to our tax situation. Thanks for any help you can offer.

[AmeliesUncle]

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@mo_56 wrote:

put it into service in 2017. 

the professional company set it up with a basis reduction of half the amount of the unadjusted basis of the piano for 5 years and TurboTax leaves it at full unadjusted basis. 

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The asset qualified for the Special Depreciation Allowance.  That took 50% of the expense the first year, then the other 50% was spread out over 5 years.  When you set it up in TurboTax, you must have not indicated it had qualified for the Special Depreciation Allowance, so it was using your 100% of the cost.

Form 3115 does not apply for using the incorrect Basis for depreciation.  To correct things, you should amend the incorrect years.

[mo_56]

Thank you for the previous answers to my problem. I am working on the depreciation amendments of 2018 and 2019.  I have gotten 2018 figured out and ready to submit, but as I work on 2019 it is pulling the information from the original 2018 which is showing my business with a loss. In the amended form I have a profit in 2018. Anyway when the Qualified Business Income deduction summary comes up in 2019 amended form it is showing a "loss carry forward from 2018" and making the QBI coming out smaller. I don't really care about the QBI but don't want to mess up the amended 2019. How can I go in and change the information  the program is using from 2018 to the amended amounts? Also as I do the 2020 I am assuming the same thing will happen so what is the best way to continue on with 2020 and not have the original 2019 information automatically added?

[ThomasM125]

The best thing to do would be to print out the corrected 2018 return and find the carryover amounts that are creating a problem. Then, look on the schedules and forms in 2019 where the carryover amounts from 2018 are reported and adjust them individually. You can sometimes type over the previous year carryover amount to change it.

[1597980]

I have a rental property and placed an asset in service in 2019 with 5 year depreciation.  On my 2019 returns, the depreciation amount was calculated to be 1/5 of the total value.  However, for my 2020 returns, the software calculates the depreciation to be much higher than in 2019.  Shouldn't it be 1/5 for each year of the 5 years?  I checked the total value and the number of years for depreciation, no errors.  Shall I accept the amount automatically calculated?  If not, I can't find where I can manually change the depreciation amount (since the total value and the number of years for depreciation are correct).    

[AmeliesUncle]

The program is correct.  It uses 200%DB, which essentially means you get a larger deduction in the early years and a smaller deduction in later years.

[1597980]

I see.  Thank you for your reply.  I thought about that possibility, but the depreciation in 2019 was 1/5.  Maybe because it was placed in July.  

What a relief to have this confirmed.  Thank you again.