Question

can I report depreciation carryover in a later year

Forum|Forum|6 years ago
June 1, 2020
1 reply
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I didn't know to report rental property depreciation expense until when I'm preparing 2019 return with help of a tax advisor. Then I need to 1040X my 2017 and 2018 return. I prepared with TurboTax Home & Business.

(Edit 6/1: I was using Turbo Tax to file my returns up to 2018. In 2019 I have a third party tax prep company file tax return for me.)

In 2017, only part of the depreciation reported on Sch E because the total expense after adding depreciation is more than the income. The remaining amount was recorded under Vacation Home Loss Limitation in the Sch E worksheet and also shown in item M "Vacation home depreciation" of "Carryforward to 2018 Smart worksheet".

In 2018, it's a little different. The whole depreciation amount is counted in expense, and the total expense is more than the rental income again. This time the exceeding amount is recorded in "Carryforward to 2019 Smart worksheet" as item G "Schedule E suspended loss", and last year's vacation home depreciation continue shown in "Carryforward to 2019 smart worksheet" as item M "Vacation home depreciation".

My tax preparer is waiting for me to file 2017 & 2018 1040X and can update 2019 return with the "Prior depreciation" number. I don't want to delay the 2019 return while waiting for 2017 & 2018's 1040X results.

My question is, can I hold the carryover losses to report in a later year, or until when I sold my rental property?

Or ask in another way, can I keep the unreported previous year's depreciation (either as suspended loss or vacation home depreciation) and freely to report in a later year?

TurboTax Home & Biz Windows

Carl11_2

Employee

First, how did you complete your taxes in 2017 and 2018? It seems apparent to me that you did not use TurboTax.

You are required by law to depreciate rental property. No, you can't play "catch up" on your 2019 return. Generally, that first year depreciation amount will not be anywhere close to a full year's depreciation, because it's prorated based on the date placed in service.

I get the impression you placed the property in service sometime in 2017. If so, and you did not take depreciation then you *MUST* amend the 2017 tax return. Same for the 2018 tax return also.

Understand that you "MUST" amend your tax returns in chronological order starting with the oldest one first. That would be the 2017 tax return in your case if my above assumption is correct.

Understand also that it is *EXTREMELY* *RARE* for residential rental real estate to *EVER* have a taxable gain *on paper* when you do your taxes. Especially if you have a mortgage on the property. When in add up your rental expenses, property taxes, mortgage interest and the depreciation you are required to take by law, it will most likely exceed the amount of rental income received for the tax year.

So rental property will almost always operate at ever increasing losses that will get carried over and grow with each passing year.

Lets start with your 2017 tax return. First, confirm beyond any doubt that you did "NOT" depreciate the property on your 2017 tax return. To do that, look for IRS Form 4562. There will be a total of three 4562's for that specific rental property. Each will have a different title.

One prints in portrait format and is titled "Depreciation and Amortization" This is the one (and only one) that actually gets filed and sent to the IRS with your tax return every single year.

Two of them print in landscape format. Of those two, one is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Depreciation" The *PRIMARY* one you need from your 2017 tax return is the one that prints in landscape format that is titled "Depreciation and Amortization Report".

T

toboracAuthor

Thank you so much Carl!

You are right on most assumptions except that I was always using Turbo Tax filing my returns. I missed the depreciation in 2017 and 2018 and now I'm X-ing the both.

I rented the house out on 4/1/2017. The 2017 depreciation is a prorated amount.

But 2017 excess amount was carried over as "Vacation Home depreciation" and 2018's as "Schedule E suspended loss". I think that's because in 2017 I have 3 month (>10%) personal use of the property before renting out so the Vacation Home Loss Limitation rule applies.

For the passive activity loss (in my 2018 and 2019 Sch E), it will be reported on Form 8582. How do we report the Vacation Home Loss Limited unreported depreciation?

A

AmeliesUncle

@toborac wrote:

But 2017 excess amount was carried over as "Vacation Home depreciation" and 2018's as "Schedule E suspended loss". I think that's because in 2017 I have 3 month (>10%) personal use of the property before renting out so the Vacation Home Loss Limitation rule applies.

No. For 2017 you need to go back and enter ZERO days of personal use. It asks for the number of personal days AFTER it was converted to a rental. After you correct that, it should show up the same as 2018.