how to enter property tax for autos for 2 rental properties - results in double counting in federal sch A

[whodiini]

Issue: The deduction for personal property tax for auto on federal sch A triple counts the deduction. 

Background:  I use one car for 2 rental properties and also personal use.  I fill out on Sch E, the personal property tax for each rental property and fill in the info for each properties sch E. 

Example:  say the personal property tax on car 1 is $100.  I enter that on the federal return even though I take standard deduction so that it can transfer to the state return. I use car 1 for both rentals and personal.  Lets say I use the car 20% for  rental 1, so $20 is used for rental expense, leaving $80 for personal use.  For rental 2, say I use the car 10% , so $10 is used for rental expense, leaving $90 for personal use.  Now on my sch A worksheet lines 5-12, it shows up as $100 as state and local personal property taxes line 3 and it adds $170 ($80+$90)  on the line non-business use of auto personal property.  The sum should be $70.  What am I doing wrong?  I can remove it from line 3, state and local personal property taxes, but that still leaves a double count and $170 instead of 70. 

How do I enter the same auto for more than 1 sch E personal property taxes?

I tried to remove car 1 from personal property on the federal return, leaving car 1 only in the Sch E rental, and car 2 as personal property.  If I do that, it shows up in CA state as

[whodiini]

OK.  I found one other post that didnt give the answer but was helpful.  So I am posting how I solved this to help others in the future.

1.  Cannot fix in easystep so need to carefully do this manually and in forms

2.  Go to the first sch E worksheet for auto expenses and note the auto expense (mileage) and other costs.  Print and/or save this page

3.  Go to forms and delete this auto expense worksheet. 

4.  Now go to the sch E worksheet and enter on 6a (auto)  the total from the prior worksheet.  By doing this you are retaining the deductions on your schedule A but eliminating the double count.

5. Repeat for the rental property.  This should keep you deductions for rentals accurate.

6. Go to schedule A, line 5c, State and local personal property taxes.  Double click on 5c to get to tax and interest deduction worksheet.  Line 3. State and local personal property taxes.  Enter the remaining personal property tax that you did not allocate to the rentals earlier.  e.g.  $100 tax, $20 allocated to rental 1, $30 to rental 2, leaving $50 for personal use.  Enter $50 here.

All the forms should be correct now AND it allows electronic filing.

[pk]

@whodiini ,  let us assume that you have two cars --- one that is used by your wife  ( prop tax $150 )  and a second used by you  ( $100 ).   You have two  rental / income props. . You use your car (#2) for your rental work and   recognized on Schedule -E   as follows     (  20% of Car #2 usage  for prop #1  and  10% for prop #2 ).   

Therefore  your  On schedule-A you would show :

Car #1 ---- $150;

Car#2 ----   $ 70  (  20% for Prop1 and 10% for prop  excluded)

and on Schedule-E you would show  

Prop#1 -- $20  as Car expense

Prop. #2  -- $10 as Car expense

Does this make sense ? 

 BTW -- why are  you using  actual expense ( tax, fuel, repair. insurance, interest  depreciation etc. etc. )  and  not per mile  amounts ?    That would be much simpler and less likely to be challenged, especially since you are using standard deduction for Federal return?

Is there more I can do for you ?

[whodiini]

One other comment - this issue is a Turbotax gotcha bug.  If you follow the easystep, it will not notify you of this bug and you will have submitted an incorrect return that results in an underpayment of tax.   I only caught this in my careful review of the return before submitting. 

[whodiini]

I AM using per mileage.  You can use mileage AND deduct property tax as well. 

This bug affects use of the same car for more than one business/rental.   If you used a different car, it would not be an issue.

But there is another issue that turbotax does not warn you.  IF you use a car for personal and business use, AND you use the sch E auto worksheet, you cannot enter the same car when easystep asks you to enter auto registration fees.    Since I didnt use the worksheet, I entered the remaining portion of property tax there.

[whodiini]

@champ  In you reply, you say that sch A you would show $70...   My point is that easystep will not populate sch A correctly and you need to manually enter in both sch E amounts after deleting the easystep populated sch e auto worksheets.  This is an example of the difference between knowing what the right answer is and getting turbotax to enter the right answer.  The former is easy - that is what your reply was.   The latter is hard and took me a while to figure out. I knew the right answer but if you try obvious things like override the sch A amount with the right answer, turbotax will NOT efile.

[whodiini]

I discovered that my solution isnt quite right.

First how I got around the problems of double counting the auto personal property tax deductions:

- Delete auto worksheet in all the sch E, noting the deduction for mileage (standard mileage + fractional property tax/VLF fee)

- Enter directly into the sch E the deduction for auto the amount from the auto worksheet.  You can enter directly once you delete hte auto worksheet

- then in the worksheet where you claim the personal property tax for auto, put in the remainder of the personal property tax e.g. auto VLF - portions claimed in sch E

The problem with this solution is that it no longer generates a depreciation form for the mileage used on the rentals. And I havent found anyway to get it to print out since turbotax thinks it is not needed. 

[AmeliesUncle]

When you go through the section for entering Itemized deductions (or the actual Schedule A in "Forms Mode"), and it asks you for the property tax of your personal vehicle, can you enter a NEGATIVE number to offset the double-entry?  If so, that should fix it.

[whodiini]

IN the sch A tax and interest deduction worksheet, I tried to enter a negative number for the auto that was being double counted in the Sch E, and turbotax does not allow a negative entry. Good idea, doesnt work.

[AmeliesUncle]

Then this is what I would do:

Only enter the full amount of the allowable property tax on ONE of the business vehicle entries.  On the second vehicle, add the full amount of allowable property tax as vehicle loan interest (the program will prorate it, just like it does the property tax).  Or you could manually calculate the prorated amount as put it in the parking/tolls spot.

That is only a worksheet in the program, so entering it as loan interest should end up on the same spot on the actual tax return for your rental as would the property tax.  But it won't incorrectly double an amount anywhere.

[whodiini]

Thank you for the suggestion but it doesnt work.  The reason is that the fraction of auto property tax in Sch E is a calculated value in the Sch E auto worksheet based on the fraction of mileage used.  So if you want to combine the 2 properties, you would add the mileage from both properties and just enter it into 1 of the properties.  If you enter just 1 of the property's mileage and not for the other, then the form 4562 which populates the mileage from Sch E is wrong.  One would print out, the other wouldnt.  My solution does not generate the 4562, but is otherwise correct. Your solution generates either 1 correct 4562 and not the other, or generates a wrong 4562 if the mileage is combined.

[AmeliesUncle]

I didn't say only enter one vehicle (on one rental).  I said only enter the property tax on one of them.  For the second rental, enter the vehicle information just like you should, but DON'T enter the property tax.  Enter the property tax as vehicle loan interest (or manually enter the prorated amount as tolls/parking).

[whodiini]

I understood you before.  These are the pros and cons of my solution vs yours:

1.  My solution:  generates a correct Sch A, Sch E for properties, but does not generate a 4562 that shows mileage used on auto for rentals.

2. Your solution:  generates a correct Sch E for properties, doesnt generate a correct Sch A (explain later), generates a correct  4562 for auto used in rentals.  The reason it doesnt generate a correct Sch A is that the property tax portion is entered for 1 rental and calculated based on the mileage used for that 1 rental, but for the other, instead of entering the property tax portion of auto, it is deducted as something else.  That generates a correct Sch E.  But the Sch A (tax and int worksheet) shows non-business portion of personal property taxes as too high.  Exanple:  Say VLF fee is $100 for the auto.  $20 for 1 rental, $30 for rental 2, leaving $50 as personal prop tax on Sch A.  WIth your suggestion, lets enter the mileage for rental 1 auto that results in the $20 deduction.  For rental 2, we enter the mileage but do not deduct the prop tax portion but enter $30 elsewhere.  On the tax & Int worksheet it lists the non-business portion of personal prop tax as $100-$20 = $80.  This is too high and one cannot add a negative number to offfset. This $80 propagates to Sch A and is wrong.

So my  solution so far is best but doesnt generate the 4562 for efiling.

[AmeliesUncle]

You are right that I didn't think it all of the way through, but my point is still valid - If you don't want the incorrect amount to flow to Schedule A, stop entering it as property tax for the rental vehicles.  

Enter it as loan interest (or manually calculate the proper amount and enter it under tolls/parking) for BOTH vehicles/rentals.  Then enter the correct amount on Schedule A.