I’m working with TurboTax business to complete and file a simple trust return (form 1041). The trust owns a rental property in a state that is different than where I reside. The trust has one beneficiary, an individual.
I noticed that after entering in all of the info in TT for the rental property, including the depreciation data, the Schedule E that is produced shows the depreciation being 0 and the actual depreciation for the property appears on the K-1 for the trust return, along with the rental income. I do understand at a certain level why this is computed in this manner (the income and the depreciation expense is “passed” to the K-1 for the beneficiary to use.
What is confusing me a little in this situation is two-fold:
a. When the trust return was prepared in a prior year by a CPA who works with trusts, the depreciation for the rental property was actually included on the Schedule E and not the K-1. This obviously lowered the P&L for the rental at the Schedule E level and came onto the 1041 as an adjusted number. This effectively generated a loss for the property. Was this a mistake to show the “cost” of the depreciation in this manner?
b. How and where the depreciation is recorded seems like an important issue in regards to my next point here. The state where the rental property is located requires that a local (state specific) 1041 be filed in that state. Because of how the federal 1041 is produced related to (a) above, it seems that the depreciation for the property wouldn’t get factored in as an expense since the state return uses the data from the Fed 1041.
Any advice here.
Thanks much!
