Standard Deduction and Depreciation of Rental Property

[AndrewA87]

I would like some clarification.

When I filed my taxes, Turbotax said I should take the Standard Deduction.  I was wondering when I take the depreciation on a rental property and also when I take Student loan interest deduction (1098-E) why they are not considered itemized deductions? And why they reduced my taxbale income when I take the Standard deduction?

[pk]

@AndrewA87 

(a) Your rental income/expenses including depreciation are reported/ reconciled  on Schedule-E.  The net of that process is reported on line 5 of Schedule-1 --See here --> 2024 Schedule 1 (Form 1040).  This and all your other additional incomes are totaled on line 10 of the schedule-1 and then entered  on line 8 of form 1040 --- See here -->2024 Form 1040.  Finally after adding all these income you get your total  income on line 9 of form 1040.

(b)  All  the  allowed adjustments   such as  student loan interest,  educator expenses,  etc. etc. are  collected/ reported in part 2 of Schedule-1 and totaled on line 26 of Schedule-1.  This then is transferred on line 10 of form 1040, resulting in line 11 -- Adjusted Gross Income.  This is generally referred to as above the line.

(c)  Your allowable deductions  ( whether Standard or Itemized / Schedule-A ) is now  reported  on line 12 of form 1040.  Your property tax. mortgage interest etc. are all reported on  Schedule-A as part of the itemized deduction.  This leads to your taxable income for the year on line 15 of form 1040.

Have I answered your query ?  Is there more I can do for you ?

[AndrewA87]

So the rental depreciation isn't considered an itemized deduction but a adjustment to your rental income which is reported on schedule1?

And because I took the standard deduction that is why turbotax did not generate a schedule A ?

Thanks

Andrew

[VolvoGirl]

Yes and Yes.   

Everyone gets to take a Standard Deduction amount off their income before the tax is calculated (it's a good thing - it lowers your income).  Which means the first 14,600 Single (29,200 Joint) of your income is not taxed and is tax free.  Unless their itemized deductions are more.  Itemized deductions are personal things like Medical, Gifts to Charity, State Income Taxes Paid, Mortgage Interest, Property Taxes, Car Registration fees, etc. Not Rental or self employment expenses.  Here is Schedule A

https://www.irs.gov/pub/irs-pdf/f1040sa.pdf 

For 2024 the standard deduction amounts are:

Single 14,600+1,950 for 65 and over or blind

HOH 21,900 + 1,950 for 65 and over or blind

Joint 29,200 +  1,550 for each 65 and over or blind (both 32,300)

Married filing Separate 14,600 + 1,550 for 65 and over or blind

If it's giving you the Standard Deduction and  not showing you Schedule A you can check the actual amount of itemized deductions by using by going to

Tax Tools on left

Tools - Topic Search (top left box)

Type in  itemized deductions, choosing.  It should highlight that in the list, click on GO

Then Click on "Change my deduction". That will display the actual amount of itemized deductions vs. the standard deduction.    (Be sure to uncheck "Change my deduction" after checking it so you do not lock in the wrong deduction.

[Hal_Al]

Adjustments, Deductions, Exemptions and Credits

Before the government starts calculating you income tax, they allow everyone to deduct a certain amount first (they do recognize you need to eat before you pay taxes). This “deduction” really consists of 3 different pieces: adjustments, personal deductions, and business deductions. 

 Every taxpayer  gets a "standard (personal) deduction” based on his filing status. A single person gets a “Standard” deduction of $14,600 (2024)  and a married couple get a Standard deduction of $29,200.

 Taxpayers who have certain types of personal expenses (mortgage interest, state & local taxes, medical expenses, and charitable gifts being the most common) may itemize expenses and if the total is more than the standard deduction, they may take those “Itemized” deductions instead of (not in addition to) the standard deduction. Itemized deductions are claimed on Schedule A. TurboTax (TT) automatically assigns you the standard deduction, until you enter enough itemized deductions, to exceed $14,600 ($29,200 married). 

Business deductions (including rental property) are claimed as deductions directly against the business income. Whereas, the personal deduction (whether itemized or standard) is claimed against your overall (total) income.  Business income and deductions, for the self-employed, are claimed on schedule C and rental income and deductions (including depreciation) are claimed on Schedule E. These business/rental deductions are in addition to your standard (or  itemized deductions).

Then there are adjustments to income. These are sometimes called “above the line” deductions because they are deducted in addition to the standard deduction, not instead of. Some common ones are IRA contributions, Alimony paid, teacher expenses, student loan interest and self-employment tax.

You may have heard of another deduction called an "exemption".  Exemptions were eliminated starting in tax year 2018. Everybody used to get an “exemption” of $4000. This was per person, hence the term “personal exemption”. Each taxpayer got an exemption for himself, his spouse and for each dependent he claimed on his tax return.  The elimination of exemptions was accompanied by larger standard deductions, starting in 2018.