Tax for rental property

[YP55]

Hello all.

I am using TT2023 Premier desktop version.

After entering all my W2 and all 1099 forms for Federal Tax calculation my federal refund would show about $3000. After that I entered my one small rental property information. My federal refund dropped below $2000 even though my total profit after entering all income and expenses is only around $500.

How is it possible that about $500 of additional income resulted in more than $1000 additional taxation?

Please be specific and let me know what line on what form should I check.

Thanks.

[AmyC]

It sounds like your additional income affected one or more credits. You will need to compare your 1040 before and after the rental. I would begin by focusing on the credits:

CTC line 19

EIC line 27

Additional CTC line 28-refundable portion

AOTC line 29

[YP55]

Thanks Amy.

But don’t have, and did not have before any of those credits.

• Child tax credit
• Earned income credit
• Additional child tax credit
• American opportunity credit

Any other ideas?

[DianeW777]

If you would like to send us a “diagnostic” file that has your “numbers” but not your personal information it would help.  If you would like to do this, here are the instructions: 

TurboTax Online:

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number and your state. This will allow us to open a copy of your return without seeing any personal information.  

TurboTax CD/Download:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax CD/Download for Windows
2. Select 'Send Tax File to Agent'
3. Write down or send an image of your token number and state then place in this issue.
4. We can then review your exact scenario for a solution.
5. Please also tell us any states included in the return. This is necessary for us to view the return.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution. 

@YP55 

[YP55]

Hi Diane. 

I just sent the diagnostic file.

Token 1180961.

My State is NC with property in SC. But I did not get to state taxes yet.

I am only in Federal for now.

Thanks for your help.

[DianeW777]

I have reviewed your federal return with the following results.

1. If the rental is completely deleted from the return your refund changes only slightly. Your original number estimate does not come up or close to the actual results.
2. With the rental activity in place the difference in refund is only $66 which is a direct result of the qualified dividends and capital gains worksheet.  
   1. This makes sense because for every dollar added to income that is NOT capital gains eligible the tax will rise because more of the income is flowing to the tax table versus the lower capital gain rates.
3. You may not have had all of your other income totally included or the calculations were not yet complete.  I can't say exactly what happened on your end, but what I see are the correct results.

@YP55 

[YP55]

Hi Diane. 

Yes, it is very interesting.

I did the same test – deleted rental information. And you are correct, it did not go back to about $3000. It changed, but not significant.

So, I decided to do another test. Start new return and stop right before entering rental information.

I just sent you another diagnostic file.

Token 1182104.

Please take a look.

Now you should be able to see what is going on.  

Thanks for your help.

[DianeW777 · Accepted solution]

After review of your return here are the results:

Although you did not enter your rental income or all of the expenses, the depreciation is the only item that is showing on your rental activity.  For this reason it is showing a total loss from your rental property for the depreciation expense and reduces your overall income.  This creates a much lower income before your actual net result and a lower tax over all.  You have the correct results once you complete the rental portion of your return.

@YP55 

[YP55]

Thanks Diane.

It’s not very intuitive to assume this behavior of the software, but it’s kind of makes sense.

Thanks again.