Depreciation and Expense problem

[Rockhoundrob]

I am doing my 2024 Business Taxes for 1 rental industrial property. I have 3 items worth $47,740 that need to be depreciated. As a test run, I filled out turbotax as if they were expenses. The net income and balance sheet were good and matched my records.

Then I removed those 3 expense items and added them to Rental Real Estate Assets so I can depreciate them. When I did this, the books were out of balance by $47,740. The only way I can make the books balance is by putting the items back in to Expenses and also leave them as a depreciation. But when I do this, the income drops  $29,600 which is not right.  I cannot expense and depreciate the same items at the same time.

What am I doing wrong?

[M-MTax]

What am I doing wrong?

You already said it: You cannot expense and depreciate the items at the same time.

[Rockhoundrob]

Right. I know I cannot so both at the same time. If they are an expense, the book are in balance.

If I remove the items from expense and put them in depreciation, then the books/assets are out of balance by $47,700.

The only other thing I can think of is changing the end-of-year cash balance since they are not an "expense".

But then it will not match my checkbook records, since I wrote 3 checks for those 3 items.

Or, I need to somehow manually add $47,700 somewhere else...

The key is the fact that it is EXACTLY $47,700 error when I move it from expense to depreciation.

[M-MTax]

Are you preparing a 1065 or 1120-S?

[M-MTax]

TT Business? You could have to add that manually to Schedule L (balance sheet).  Buildings and other depreciable assets. You might also need entries in Cash and Mortgages (loans).

[Rockhoundrob]

I am using form 1065. I am sure it is some simple thing I am overlooking.

I would think if the book balances with the 3 items as an expense, then I remove those items from "Expenses" and move them to "Assets to be Depreciated" the books should still balance, but the liabilities and capital is        -$47,700  (negative $47,700) when I remove the expenses and put them in Assets to be depreciated.

No matter what, it is $47,700... so I am thinking I need to do 1 more thing when I remove the 3 items from "Expense" to "Assets to be Depreciated". 

[Rockhoundrob]

I am not sure I should change anything in the beginning of year or end of year cash balance.

I do know if I remove $47,700 from expenses, then the end of year cash balance changes, but I am afraid to change that, because it needs to match the bank records.

[Rockhoundrob]

After messing around with it some more...

I can get everything to balance out IF....

I go to "Enter Your Assets" at the Balance Sheets then scroll down and there are 3 options

1) Other Investments

2) Short term Assets

3)Other Assets

I picked Other Investments and added $47,700.

While it works, I am not comfortable adding it to the category. The "assets" are Replace fence, New Concrete driveway, and Major roof repair (total $47,700).

I would have thought TurboTax would automatically add the assets when I add them to the

"Rental Assets Depreciation".

Is this something I need to do manually? and what category do I add the 3 new items to?

[Mike9241]

those items need to be reported as depreciable assets line 9a and depreciation taken on them based on the date placed into service,

we can't see your return but a quick way to check is to see if the ending balance line 9a is

about $47K more than the beginning balance sheet. If not something went wrong on your asset entry. 

if correctly entered line 9b at the end of the year should be more than the beginning of the year by the amount of depreciation calculated for each of those assets. 

one possibility is that section 179/bonus was taken (should be visible in the asset entry worksheet) for those assets, but disallowed if the net rental income before these deductions was a loss. then the depreciation becomes a book tax difference that might require manual entry on schedule M-1 line 4a.

if you have suppressed the completion of page 6 because of the answers to question 4 in schedule B uncheck those so you can see what Turbotax would be reporting.

"I would have thought TurboTax would automatically add the assets when I add them to the

"Rental Assets Depreciation". it should have but then did you import from accounting software like QB. if you did then within QB you would meed to assign a code so when you import Turbotax knows where to place them. so go into the rental asset section to see if they there. then see what depreciation was computed.

[Rockhoundrob]

those items need to be reported as depreciable assets line 9a and depreciation taken on them based on the date placed into service,

Robert's reply: OK. that might have been the problem. Those 3 items were not there. I had to add them manually.

we can't see your return but a quick way to check is to see if the ending balance line 9a is

about $47K more than the beginning balance sheet. If not something went wrong on your asset entry.

if correctly entered line 9b at the end of the year should be more than the beginning of the year by the amount of depreciation calculated for each of those assets.

Robert's Reply: The amount is about $25,000 greater, but I believe it is because of Section 179, I was able to take some "Special Depreciation/expenses" this year. So I think I am OK here.

one possibility is that section 179/bonus was taken (should be visible in the asset entry worksheet) for those assets, but disallowed if the net rental income before these deductions was a loss. then the depreciation becomes a book tax difference that might require manual entry on schedule M-1 line 4a.

Robert's Reply: There is no loss, so I don't think this is a problem now.

if you have suppressed the completion of page 6 because of the answers to question 4 in schedule B uncheck those so you can see what Turbotax would be reporting.

Robert's Reply: There is no Schedule B. This might be because the "Company" is a pass-through entity.

All I do is fill out income minus expenses, then send out K-1's.

"I would have thought TurboTax would automatically add the assets when I add them to the

"Rental Assets Depreciation". it should have but then did you import from accounting software like QB. if you did then within QB you would meed to assign a code so when you import Turbotax knows where to place them. so go into the rental asset section to see if they there. then see what depreciation was computed.

Robert's Reply: I enter everything manually. In the past it was income and expenses only and very simple ( no overhead, mortgage, accounts receivable, etc....)

This is the first time I had to deal with depreciation. I think I am OK now. The fact that I was able to add those 3 items to "assets at the end of the year" on the quick entry for the balance sheet seems to fix the problem.

Everything is "In Balance" on all 3 items now.

Thank you for your help!!

[Rockhoundrob]

I guess now the only question I have left is ...  since I added the 3 items manually as assets to depreciate,

will those items show up next year on Turbo Tax 2025?

[M-MTax · Accepted solution]

will those items show up next year on Turbo Tax 2025?

Yes, they should show up next tax year if you transfer your 2024 return into your 2025 return.

[Rockhoundrob]

Great!!  Thank you very much for your help!!