Do I have to keep depreciating?

[travcampbell]

Hi,

In 2020, I began depreciating assets for two rentals. I fully expected to want/be required to depreciate them this year...

However, when I added the depreciation this year it INCREASED the amount I owe the IRS (from $30 to now $300).  So three questions:

1. Now that I started depreciating, do I have to continue?

2. If I have the option not to depreciate, is it in my interest to do it despite the increased tax cost this year?

3. To throw in a new wrench...I will be selling one of the two properties this year (only rented 2 years). With this info, does is sway question 2 above?

[KrisD15]

1. Now that I started depreciating, do I have to continue?

Yes, you are required to depreciate business assets.

2. If I have the option not to depreciate, is it in my interest to do it despite the increased tax cost this year?

No one can force you to claim depreciation, however you will need to recapture deprecation when you dispose of the asset whether you claimed it or not. 

3. To throw in a new wrench...I will be selling one of the two properties this year (only rented 2 years). With this info, does is sway question 2 above?

Same as above, the depreciation is recaptured when you sell. 

Depreciation usually lowers the income and therefore your tax liability when used, except for the year you sell. 

There may have been another factor with the increased tax or are you entering the deprecation incorrectly? 

With the TurboTax program, the program usually calculates the depreciation for the tax year. 

Were you entering "Previous Years Depreciation"?

[travcampbell]

There may have been another factor with the increased tax or are you entering the deprecation incorrectly? 

This is probably possible, nothing is perfectly clear. I looked at my 2020 return and captured what was listed for 2020 for each asset, then listed that in the "previous years" entry.

With the TurboTax program, the program usually calculates the depreciation for the tax year. 

The system did make a calculation, but I had to update it manually because the tool tip stated, "If last year was your first year, use the same amount from last year (I think)"

Were you entering "Previous Years Depreciation"?

I only entered the 2020 depreciation...still not really certain what and where I'm going wrong.

[ColeenD3]

Yes, you must depreciate the property for every period of time that the property is used for the production of income.

Residential real estate is depreciated over 27.5 years. The first year uses the midmonth convention, meaning there is a specific percentage based on the month placed in service. For every year except the first, the percentage used is 3.636%. (For a few years it is 3.637%). Multiply that percentage by the basis to see if that is what is being reported.