Why does Turbotax calculate a lower property cost basis on form 4562 than I entered?

[csaba_mate]

My property cost basis $145,978 but form 4562 shows $139,978 which is $6,000 less

[Cynthiad66]

There must be something entered that reduced the basis of the property.  Do you recall if you entered an amount for land.  Lad is not depreciable so the basis is usually reduced to account the the cost of the land associated with the property.

To figure out the depreciation basis of your rental property, you must also separate the cost of the building from the cost basis of the land. Land value for tax purposes is not depreciable. 

Real Estate Taxes and Rental Property

@csaba_mate

[csaba_mate]

Cynthia, I'm on the phone with tech support.  No - this is a condo property thus no portion of the cost basis is allocated to land and the confirmed tax basis per TurboTax is $145,698 so I have no idea why it carries over to the 4562 at $139,698.  I personally feel there is an error in the calculations by TurboTax using 350/365 days in service and it is applying to my cost basis somehow. 

[RaifH]

TurboTax should not reduce the basis based on the days in service. Did you take a residential energy credit for your condo? 

The following entries can reduce your basis in a property. but that seems like the most likely culprit since we know you haven't taken any depreciation prior to this year:

• Section 179 deduction.

• Nontaxable corporate distributions.

• Deductions previously allowed (or allowable) for amortization, depreciation, and depletion.

• Exclusion of subsidies for energy conservation measures.

• Certain vehicle credits.

• Residential energy credits.

• Postponed gain from sale of home.

• Investment credit (part or all) taken.

• Casualty and theft losses and insurance reimbursement.

• Certain canceled debt excluded from income.

• Rebates treated as adjustments to the sales price.

• Easements.

• Gas-guzzler tax.

• Adoption tax benefits.

• Credit for employer-provided child care.

• Partial disposition of MACRS property, whether you elect to recognize the partial disposition or are required to recognize it.

[csaba_mate]

I just changed the in-service date to 10/15/21 and it reduced my cost basis to $35K - there is clearly a glitch in Turbotax's code.  People without any tax knowledge would not even notice this.  This is a pretty big issue. 

[HelenC12]

Please clarify. Is this rental property? You placed the asset in service on 10/15/21 and now your basis was reduced from $145,978 and $35,000?

[Carl]

I'm not convinced this is not a data entry error on the user's part. This can easily happen because there are many things the program does not (in my opinion) provide enough clarity on. Then there's other things the program provides more than enough clarity on, but the user for whatever reason, does not read the small print.

On thing you can do is figure it manually yourself, to see where the user (most likely) is messing up. But you have to figure it the way the IRS says to figure it. (Which is what the program does.) Take a look at IRS Publication 946 at https://www.irs.gov/pub/irs-prior/p946--2019.pdf  On page 38 is the worksheet to use. For residential rental real estate you'll use table A-6 on page 72.

Things that make this happen.

1) If the business use is less than 100%, then the cost basis of the business use portion will be less than the overall cost basis.  So even if you placed the asset in service on 10/15/2021, the business use percentage as of that date is ONE HUNDRED PERCENT unless you really do have personal use after converting the property to a rental. What you used it for before converting it to a rental does not count for anything.

2) If you declare more than ZERO days of personal use, unless you actually have days of personal use after you converted it to a rental. Take note that personal use days should be zero, as it's only asking for days of personal use "AFTER" you converted the property to a rental. What you used it for before the in service date *does not count* for anything and therefore should not be included in any "Personal use" days you may have after converting it to a rental.

3. If you claimed a SEC179 deduction on any assets aside from the property itself, that too will reduce the overall cost basis total of all assets, by the amount of SEC179 claimed.

4. If you claimed the Special Depreciation Allowance on any assets, that too will reduce the overall cost basis total of all assets by the amount of SDA claimed.

[csaba_mate]

Carl,  thank you.  You're absolutely right - it's the question about % of time used for business that was ambiguous and when I finally entered 100% of the property was used for business purposes upon the conversion/in-service date, the numbers were in-line with my expectations.  Much appreciated.

[Carl]

You're welcome, and glad you were finally able to identify the cause. I not sure, but I do think that screen where you enter business use percentage does not inform you in the small print about not including the period of time before being placed in service.