Trying to enter prior depreciation of rental shows red in form view (conversion of LLC to TIC, then sold).

[RickG_123]

We had a rental property in an LLC that broke-up this year into a tenants-in-common (TIC) ownership.  So rather than receiving a K-1 from the LLC, I am now entering the rental on my individual return.

The rental was first acquired by the LLC in 2013, and "entered" service in the TIC in May 2020.  When I try to enter the prior depreciation (in Form view, since I never get asked for prior depreciation when stepping-through adding the asset), it initially shows blue, then changes to red.  I'm assuming this is because TurboTax thinks it's an error somehow.

To perhaps complicate matters, we sold the property in November 2020.

What I'm looking for is TurboTax to calculate/use depreciation from May to November of 2020, being the time when the TIC first started "owning" the asset, and when it was sold.

Why is it showing the prior depreciation in red?  Is this an error?  How do I enter assets under this scenario to get the depreciation correct?

Help!

Thanks much,

 - Rick (Using TurboTax Premier desktop)

[tagteam]

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@RickG_123 wrote:

When I try to enter the prior depreciation (in Form view, since I never get asked for prior depreciation when stepping-through adding the asset).....

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First of all, you should have received a final K-1 (1065), assuming the LLC was being treated as a partnership (which is the default).

The program will not ask you for prior depreciation in the event you are treating the property as placed in service in the current tax year.

[Carl]

How do I enter assets under this scenario to get the depreciation correct?

You have to use the original in-service date from 2013 when the property was originally placed in service. Then assuming you have already entered the K-1 information, when entering it in the SCH E section of the program, your prior depreciation taken will be the total of the depreciation from 2013 thru 2019, plus the amount of depreciation shown on line 16 of the 1065. (Or that share of the depreciation that applies to your share of ownership now, if that applies to you.)

Now I would expect that depreciation to already be shown on page 2 of the SCH E. However, I don't see a spot for it anywhere on page 2. The only thing I see of page 2 of the SCH E that even relates to depreciation, is the SEC179 expense which normally doesn't apply to rental property. (I said *NORMALLY*, not always.)

[RickG_123]

Thank you - Yes, received the final K-1.  There should be depreciation from May 2020 to November 2020, being the months the rental was in-service under the TIC.  Those months of depreciation are needed for my personal Schedule E listing of rental expenses and depreciation.  How would that get entered/calculated?

Thanks again for the help!

 - Rick

[RickG_123]

Thank you - Yes, the K-1 information is already entered.  But under the TIC, the rental property gets listed "again" if you will, as a personal rental rather than the numbers entered from the LLC's K-1.  It's the depreciation from May 2020 to November 2020 (when it was sold) that I'm trying to get in there.

[Carl]

But under the TIC, the rental property gets listed "again"

Yes it does, of course. It's shown for the period of time it was in the 1065. Then again for the period of time it's in the TIC.

[tagteam]

@RickG_123 

I am not sure the following will help you, but it definitely corresponds to your scenario.

A member who receives a liquidating distribution of depreciable property acquires a depreciable basis in the property. To the extent the transferee member's basis does not exceed the LLC's predistribution basis, the member assumes the LLC's role and continues to depreciate the property using the remaining life and method used by the LLC (Sec. 168(i)(7)). If the member's basis exceeds the LLC's predistribution basis, the excess is treated as newly acquired property that is placed in service by the distributee at the time of distribution. This excess basis is subject to the depreciation rules, lives, and methods in effect at the time of the distribution (Sec. 168(i)(6)).

A member's holding period for property received in a nontaxable distribution includes the holding period of the LLC (Secs. 735(b) and 1223(2)). This rule applies whether the member receives the property in a current distribution or a liquidating distribution.

[RickG_123]

Well, thanks - Most of that reads as gobbledy-**bleep** to me, which I guess is why people hire accountants rather than using TurboTax for more complicated situations!

Anyway, I ended up just overriding the TurboTax calculated depreciation for each asset with the value provided by the accountant who handled the LLC and summary through the sale.  (They were close, but not matching.)

[Carl]

I ended up just overriding the TurboTax calculated depreciation for each asset

Just be aware that means you will not be able to e-file. You will have to print, sign and mail the return to the IRS. If a state return is applicable, then the same will hold true for the state return.

Assuming you filed for an extension, so long as your mailed return is postmarked by Oct 15 or before, you'll be fine.