Hi, I have a rental property in AZ (not my home state). When I do my Federal return, I got a profit after using rent income deducting expenses and depreciation. However, once I get to work on AZ state tax return, Turbotax gives me a screen stating: "We don't see a deduction for depreciation on your federal return.", then it proceeds to ask me " Do you want to enter Arizona-only depreciation?". I'm confused: I did depreciation on my federal return, and the rental income carried over to AZ state return is the rental profit after deducting expenses and depreciation. What do I do now? Any help is greatly appreciated!!
Arizona doesn't recognize bonus depreciation. So if you got accelerated depreciation or a section 179 deduction then you need to add it back in to your income and calculate what the federal depreciation would have been for Arizona purposes.
TurboTax does the first one for you. It removes the bonus depreciation automatically when it generates the Arizona return. But you need to help tell the system what you are depreciating again in order to get the Arizona depreciation deduction.