Sec 179 For Real Estate Professional not being allowed in TurboTax

[Yvonne S]

Hi. Per the described below I'm a Real Estate professional, but TurboTax is not allowing the Sec 179 Deduction as it is not considering my rentals as "business income" on line 11 of the 4562.  It's showing the assets as Sec 179, but limits the deduction as it has nothing on Line 11. 

My only source of income is Residential Rental income from 2 properties.  I spend more than 750 hours (documented hours) on rental activities.  I report this rental activity on Sch E (since per Pub 527, Sch C is only used if you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service - which I do not do.) I've answered all the questions for the QBI part as well, in case that is relevant.

I've answered these questions in the step-by-step, yet TurboTax still isn't allowing the Sec 179 deduction for items such as furnishings and appliances, even though there is positive income shown on each column of the Sch E.   I see where I can "add" business income to line 11 of Form 4562 when I click through to the "Depreciation Options" worksheet but I would feel better knowing that the system is correctly understanding my situation and reporting properly.

Thank you in advance for any suggestions you can provide.

[Anonymous_]

In which area of the Rentals section are you entering the furnishings and appliances?

[Anonymous_]

You should be entering furnishings and appliances in the Assets/Depreciation section.

[Mike9241]

entering the amount on line 11 doesn't seem to do anything because the line then appears in red. 

the issue is Turbotax is not treating the income as business income 

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[Yvonne S]

Hi and thank you for your prompt reply.  Yes indeed I am entering them under the assets/depreciation worksheets and adding the amount to the line for Sec 179.  They are flowing through to the Form properly, but the issue is the income limitation, as it is not treating my rental business as a "business" because it's not on Sch C or those others, but rather on Sch E. In one of the pop-up windows TTax says that I cannot take the 179 because it is not a commercial property rental.

[kwallace4]

When entering an asset be sure to read all of the screens thoroughly.  If the asset qualifies for Sec 179 or the Special Depreciation Allowance (SDA), then one of the screens that appears after you enter the asset will give you the option to take the Sec 179 or SDA or both if the asset qualifies. Not all assets qualify, for example, the MACRS classification of Residential Rental Real Estate does not qualify for either Sec 179 or the SDA. But the MACRS classification of Appliances does qualify if you meet other requirements.  So if the program does not give you the option to take the Sec 179/SDA for an appliance, it's usually because you did not indicate, in some way, that you are an active participant in the rental activity.

If you are getting the error that Sec 179  should not be entered because this rental property is not a commercial property,  it's likely the asset is classified as residential rental real estate, which would be correct for property improvements. The MACRS classification of structural residential rental real estate does not qualify for either Sec 179 deduction or the SDA for accelerated depreciation.  It does include Section 179 expensing of Section 1245 property (non real property) expanded under TCJA (Tax Cuts and Jobs Act) for residential single/multifamily property where the property is used or connected with predominantly furnishing lodging such as furniture, appliances and other equipment. 

[MythSaraLee]

The Sec 179, Schedule C and 1099 Misc must be filed together, right?

Why in the NY state file, the system does not transfer all data? Thanks

[kwallace4]

You had mentioned your only income is from residential rental properties and that you classify yourself as a real estate professional with active participation.  Sch E is the correct form and within the input screen for depreciation of assets, you would indicate you are claiming sec 179 for your section 1245 property.  The net income should carry into your state return.  The only add back required in NY on IT-398 is for bonus depreciation (Sec. 168K).  1099-Misc, box 1, is used to report rents. 

[MythSaraLee]

@kwallace4  Thank you so much for your fast replies.

I am another person who is asking questions about 1099 like a small eBay seller. 

It seems that the Turbo system will not transfer all data into the NY state files.

It will not automatically form 1099, 1245 or Education Credits. But it generates Sch E.