Adjustments Preferences value in Form 4562 and From 3885A

[9month9wine]

Hi,

There are two set of form 4562 and 3885A in Federal and California Tax return. In the set of forms with title "Alternative Minimum Tax Depreciation Report", the last column is "Adjustments Preferences". My question is about the value in this column.

In my 2021 Tax return, the value in column "Adjustments Preferences" in both form 4562 and form 3885A are the same. But in my 2022 Tax Return, the value is big different in these two forms. Wonder, 

1) Is tax law changed in 2022 and impacted this value?

2) Is my answer somewhere in TurboTax different from 2021 and  impacted this value?

3) How is this value calculated in TurboTax? I could not find it anywhere.

Appreciate your help!

Thanks,

Belinda

[RobertB4444]

This is the depreciation adjustment that is made if you are impacted by the Alternative Minimum Tax.  The adjustment reflects the amount that would be changed in calculating the AMT for your particular situation.  The amount of the adjustment changes based on your other income and deduction amounts.  So it isn't effected by any new laws this year.  Your income and deductions are just different this year than last, apparently.

The calculation for this is fairly complicated.  If you have form 6251 in your return you can look at that form and the associated worksheets to see the calculations that are being done.  The actual AMT effects very few taxpayers as a percentage so it probably has no effect on you but if it does the 6251 will show the calculations as to why.

@9month9wine 

[9month9wine]

Hi,

I did a test in TurboTax, lower W2 income but this did not change the 40 year depreciation life in California tax return. Appreciate if you can show me the specific tax law saying that using 40 years as depreciation life rather than 30 years in California Tax Return for the property put into service in 2019 (after 2018).

Thanks,

Belinda

[RobertB4444]

No, you should have a 30 year depreciation schedule for any assets placed in service after 2017.  If TurboTax is trying to depreciate an asset over 40 years there would seem to be a mis-entered date somewhere.  Or you may need to delete the asset and re-enter it.

@9month9wine 

[9month9wine]

Hi Robert,

This is what I suspect, maybe we answered the question differently this year and caused the issue. We have submitted diagnostic file, the token # is 1112489. Please help to take a look and advise what we need to do? We are currently pending on this issue to be resolved in order to file the return.

Thanks,

Belinda

[9month9wine]

By the way, we deleted all assets and reentered them but still the same situation. 30 years were used for Federal calculation and 40 years were used for California calcualtion.

[AnnetteB6]

After further research, a resource was found that verifies the way TurboTax is handling the depreciation for the foreign rental property on the California return.  

When the Federal tax law changed in 2017 due to the Tax Cuts and Jobs Act to shorten the recovery period for foreign rental properties from 40 years to 30 years, California state law did not conform to this change.  They opted to keep the longer recovery period and then report the difference between the Federal depreciation and the California allowed depreciation as an adjustment on the California return.  So, therefore, TurboTax calculates it both ways for the California return and includes the difference as an adjustment.

For your reference, here is a link to the document that states the Federal change in recovery period (see page 158 or the screenshot below) and then later the fact that California does not conform to the change (see page 159 or the screenshot below):  Summary of Federal Income Tax Changes 2017

@9month9wine