TurboTax Business 2021 is miscalculating residential real estate depreciation

[gscorliss]

I have 4 rental properties and I have just started to depreciate on schedule E in 2021.

I have gone to an accountant who has given me the correct depreciations for each property.

Has anyone else been having a problem getting the correct depreciation?

Property #1 on Turbo = $2,227

                         Correct = $2,549

                               Diff. = <$322>

Property #2 on Turbo = $1,448

                         Correct = $1,807

                                Diff. = <$359>

Property #3 on Turbo = $2,403

                         Correct = $2,825

                                Diff. = <$422>

Property #4 on Turbo = $0

                        Correct = $591

                             Diff. = <$591>

Lost depreciation total: $1,694

[JamesG1]

What depreciation method, convention, useful life, date of service, business use %, land basis and depreciable basis were used to compute the depreciation expense you were provided?

View and compare the methods, conventions, etc. used by TurboTax on the Depreciation and Amortization Report.  

Click FORMS in the upper right corner of the screen.  Select Depr Report down the left hand side of the screen. 

[Edited 03/30/2022 05:08 PM PST]

@gscorliss 

[Carl]

Assuming the property is classified as residential rental real estate (not business rental) it's depreciated by the program, by default over 27.5 years using straight line depreciation.

Common reasons that first year depreciation will be wrong.

- You did not indicate the property was rented "the whole year", when you should have, regardless of date placed in service. The program will figure based on date placed in service. So you still select "the whole year".

- You indicated the property was less than 100% business use, when it should be 100% business use. The program bases the business use percentage *from the date placed in service*. What it was used for before being placed in service does not count for anything.

- You indicated personal use days greater than zero (f you were in fact, asked for that). The program is asking for personal use days *after* the property was placed in service. So that should be indicating zero personal use days. What the property was used for before it was placed in service does not count for anything.

Now some of the above is addressed in the property profile section (if there is such a section in TurboTax Business.) The rest (or possibly all of it in TTX Business) is dealt with in the rental assets/depreciation section, where you enter the rental property itself as an asset.

[tagteam]

---

@gscorliss wrote:

Has anyone else been having a problem getting the correct depreciation?

---

There have been no reports of a programming error that would cause the depreciation deduction calculated by TurboTax Business to be incorrect.

If you want assistance, however, you need to provide more details, for example, the bases of the properties, the dates the properties were placed in service, the type of return you are preparing in TurboTax Business, et al.

In TurboTax Business, you would only be reporting rentals on Schedule E if you were preparing an income tax return for a trust or estate (Form 1041). Are you, in fact, preparing Form 1041?

[DrH21]

Yes, I am having the same issue, or a similar issue.

The summary has the correct raw information, as shown below, but miscalculates. Have a look:

TurboTax calculates 8,760 of depreciation, but 241,426/27.5 = 8,779.

Naturally, every previous year with a professional accountant, we've taken the proper amount of 8,779. I can't quite figure out how it's doing this. 8,760 would represent SL depreciation opf 27.56 years, not 27.5 years, so it sure seems like a programming error by way of simple typo in the formula of 27.56 rather than 27.5. It's easy to imagine a programmer accidentally also hitting the '6' key after striking the '5' key.

Your estimated expense for this asset is    $8,760
Show Details
Years to fully depreciate 27.5 years
MACRS Convention MM
Depreciation Method SL

Asset Information
Description RENTAL SINGLE-FAMILY
Cost / Cost basis $241,426
Date I started using it in this business 07/01/2012
Business use percentage 100.00 % Business Use
Sold / Retired from business use in 2021 No

Asset Category I - Residential rental

Special Deductions
Section 179 deduction $0
Special Depreciation Allowance $0

[DrH21]

Following up...

I 'solved' my own situation but I don't like the solution. In my case, this is the first year I'm using TT. I entered my asset cost and service date and there should have been 8.5 years of SL/27.5 depreciation. The annual figure is 8,779, so this means that the total thus far, entering 2021, should be 241,426/27.5*8.5 = 74,621. But when I was entering the asset, TT showed me a slightly lower figure of 74,256. Given that the error this year between their 8,760 and the correct 8,779 is only $19, 8.5 years cannot account for around $400 of error. BUT... when I went back and put their incorrect 74,256 figure in, rather than my correct 74,621, it spat out the correct amount for this year, namely 8,779.

So, OP, I'd ask: did you override the previous depreciation figure that TT calculated, and replace it with a correct figure? If yes, then try going back and replacing your correct figure with their incorrect one and see if that, at least, gives you an accurate figure for 2021.

Good luck.

[steveleslieg]

Please check prior amount of depreciation. 

Seems as a higher amount of depreciation was entered. approx $74630

[tagteam]

You have some sort of an input error somewhere, @DrH21 

[DrH21]

Hi,

You are correct in that the amount of previous depreciation calculated by TurboTax was $74,256, and I'll address at the end of this post. But please try this experiment first.

Take a calculator and divide the cost basis of $241,426 and by 27.5. Please confirm that a calculator (i.e. don't use TurboTax for the moment) gives $8.779.12, which we round to $8,779.

Consider a service date of 7/01/2012. This means that, through the end of 2020, I've had 8.5 years of depreciation. Now, on your calculator, please multiply $8,779*8.5. Please confirm that the answer is $74,621.50, which we will round to $74,621.

Now, please consider the TurboTax number of $74,256. Naturally, when I saw that figure, I checked my own records and corrected it to $74,621. After doing do, TT calculated depreciation as $8,760. Head-scratcher. So, after I made my original post, I decided to reset the previous depreciation back to $74,256, and now TurboTax gives me the correct $8,779 for 2021.

I'm a numbers person and a logical person. I don't like internal inconsistency. Why does TurboTax apparently rely on an incorrect previous depreciation number in order to calculate a correct 2021 depreciation figure? If someone could explain *that*, I'd put stock in the answer. A few people have said 'user input'. Thanks. There are two inputs: the cost basis and the service date. We already agree that on 27.5 MM SL. The inputs are correct. The crux is that previous depreciation figure calculated by TT. It appears to be incorrect, but when I correct it, this year's depreciation is incorrect. Also, I've taken that depreciation, so underreporting it is not cool with me. If I was selling the property this year and relied on that previous depreciation figure, I would overstate my ACB and therefore under-report my capital gain.

I have had three CPAs since 2012, one other software package, my Excel sheet, my brain and my calculator. All agree that the previous amount is $74,621+/-, not $74.256. Why is TurboTax coming up with $74,256?

Thank you,

[steveleslieg]

Hello, using numbers only (all numbers rounded) 

74622 - 74256 = 366

8779/12 = 732

732/2 = 366 (1/2 month)

-here is some additional info I found.

MACRS convention determines the number of months for which you can claim depreciation during a partial year, either when you first placed the asset in service or when you disposed of it.

The mid-month convention only applies to residential rental property, nonresidential real property, and railroad grading or tunnel bore. It simply means that you get a half months worth of depreciation no matter when that asset was placed into (or taken from) service during that month, whether that was at the beginning, middle, or end of the month.

[steveleslieg]

Hello, using numbers only (all numbers rounded) 

74622 - 74256 = 366

8779/12 = 732

732/2 = 366 (1/2 month)

-here is some additional info I found.

https://ttlc.intuit.com/community/business-expenses/help/what-is-macrs-and-macrs-convention/00/26869....

[steveleslieg]

The mid-month convention only applies to residential rental property, nonresidential real property, and railroad grading or tunnel bore. It simply means that you get a half months worth of depreciation no matter when that asset was placed into (or taken from) service during that month, whether that was at the beginning, middle, or end of the month.

[tagteam]

---

@DrH21 wrote:

Now, please consider the TurboTax number of $74,256. 

---

That (lower figure) would be due to the mid-month convention being used for the tax year during which your rental was placed in service. 

Your rental was treated as having been placed in service on 7/15/2012 (not 7/1/2012).