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Ray1
Level 3

Rental/residential property Depreciation

- I purchased a 2 units duplex property on 10/2018 and both units were rental until 03/2019

- 1 unit was used from 03/2019-08/2019, the second unit was rented all the time. That unit that I used as primary residence was back rented from 08/2019-10/2020

- in my 2019 return Turbotax determined that the depreciation should be ~$2k

I sold the property on 10/2020

- I didnt know that for the 3 months I owned the duplex I may be eligible to depreciate it so my depreciation for 2018 was 0

- I should also mention that my primary reason to buy this property was to occupy it but it was initially rented to tenants that I couldn't cancel their contract and after a few months that I used it  as my primary residence I moved out of that state on late 2019 because my job changed and I got employed in a different state, and my mortgage was FHA.

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Now when Im trying to calculate my capital gains from the sale, my depreciation is being calculated by Turbotax to be around $7k. It asks me if the units were rented through 2020 (which they were 100%) and it calculates that the depreciation of all the years should be ~7k. This generally looks like a problem in Turbotax online that screwed (maybe!) the 2019 or the total depreciation! My general conclusion based on a conversation that I had with a TurboTax CPA was that the Turbotax online software cant recognize the differences between each years' rental vs primary residence and just takes the last entry as a whole and that's why this calculation is being as I described.

I asked a few experts in TurboTax (some were CPAs) and I have different answers each time. Some say I should amend 2019 and 2018, and some say just file based on 2019 file and if IRS requests then amend. 

I'm just super confused what I should do. Please help me navigate this.

5 Replies
Mike9241
Level 15

Rental/residential property Depreciation

Turbotax isn't designed to handle a situation like yours.  It can't handle depreciation that is on and off and to boot, you didn't take depreciation as required in 2018. the IRS says you have to compute your gain as if you took the 2018 depreciation. you can't amend 2018 because the method you used was an impermissible method requiring filing form 3115 for 2020 to catch up.  also complicating matters is the fact that 1 unit was used as your personal residence for 5 or 6 months. you may be entitled to a partial home sale exclusion but this too is complicated because you first rented, then converted to your home, then back to rental.  your reason for moving out was job-related. there are rules regarding the home sale exclusion in your situation. 

Ray1
Level 3

Rental/residential property Depreciation

thank you for the reply, now what's your suggestion?

Critter-3
Level 15

Rental/residential property Depreciation

Employ a local tax preparer for your situation since TurboTax will not do this correctly for you and the form 3115 is not a do-it-yourself project.

Ray1
Level 3

Rental/residential property Depreciation

" you can't amend 2018 because the method you used was an impermissible method requiring filing form 3115 for 2020 to catch up. "

You mean its not easy/possible to do this in TurboTax because it was different each year, and for 2020 I would need to file 3115 to be able to consider the final(right) depreciation. If my understanding is correct, then I only need to worry about the 2020 return and file it, but use another service (probably a local CPA) to file the 2020 return including the 3115, right? The 3115 would be based on calculations that consider differences between 2018, 2019 and 2020, something like 3 different calculations all in one

Critter-3
Level 15

Rental/residential property Depreciation

Yes ... you file ONE 3115 form on the 2020 return to correct all 3 years.  

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