Schedule E Worksheet: Sec 179 carryforward-reg should not be entered....

[KevynM]

I get an error on a residential rental property on Sched E and 4562: "Sec 179 Carryforward-Reg should not be entered, because this rental property is not a commercial property."  Asset was newly in service on 12/13/2022 (last year) - at which time 0 depreciation was entered by Turbotax.  I think it should not have been entered as Sec 179 as we no longer are "materially involved."  This property (with taking $0 in 2023 for depreciation) has only $313 income in 2023 - and depreciation carryover amount is $2,232 for the asset (which, in hindsight, I should have fully expensed last year).   How should I address this?

[PatriciaV]

Does TurboTax present you with a line or sub-form showing the Section 179 carryforward amount? If so, try to delete that number from the box/form. You might also consider amending last year's return to fully expense the asset.

[KevynM]

Yes, it does.  As a subset of Schedule E, in the "Carryovers to 2023 Smart Worksheet," under "Section A.  Section 179 carryover (enter as positive amount)."  There are 3 columns there, "Regular Tax," "QBI" and "AMT."   Under "Regular Tax," it shows the full amount from 2022 carried over as a red number (error).  A 0 is under QBI and AMT is grayed out.

I can delete that amount, but when I rerun the "REVIEW" function, it shows up again.  If, though, I input a 0, that passes the T-Tax review.   My concern about doing this:   presumably, it will either:  a) show up again next year as the $2,232 amount and have the same result - or - b) have a 0 carryover - in which case I lose that full expense.

NOTE:  this rental property has a net loss. So, perhaps that's why the carry-forward "doesn't work?"

[KevynM]

Sorry: I was incorrect in my original post that the property had net income of $313.  For this property, as stated in my 2nd response, it was negative income.

Thank you.

[PatriciaV · Accepted solution]

The issue is that the property is residential and shouldn't have Section 179 depreciation in the first year. If you amend last year's return and expense the asset fully, you won't have a depreciation carryover to this year, or passive losses carried over due to depreciation exceeding income.

If you enter zero for the Section 179 carryover amount this year, it will not be carried forward to future returns. But if you had a passive loss generated last year because you claimed depreciation and had no income, that carryover should remain to offset what income you do have this year.

[KevynM]

Thanks, Patricia!   Sounds like I MUST amend last year's taxes or I'll lose the deduction.