Depreciation of rental property two owners 50%

Forum|Forum|6 years ago
May 31, 2019
4 replies
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My brother and I inherited rental property this year from my mom (50%/50%). Turbo tax figured the income and expenses 50/50 when I input the full amount. For depreciation am I suppose to input only 50% of the appraisal and land amounts?

Cost: $200,000 (appraised amount)
Land: $43,500

Do I input $100,000 and $21,750 for the amounts that go on Form 4562?

TurboTax Premier Windows

Best answer by TomYoung

Yes, you need to enter your 50% ownership in the assets. TurboTax warns you about this on the "We Can Automatically Divide Your Income and Expenses for You" page where you enter your ownership percentage: "The percentage you enter here applies only to your expenses. The cost of your assets must be entered as the amount that represents your ownership percentage."

Tom Young

TomYoungAnswer

Employee

Tom Young

Rick-Cook

Employee

Thanks, Tom. This is EXACTLY what I was looking for, and I found it within 10 minutes of putting in a similar question. Much appreciated!

Carl11_2

Employee

This is the one instance where I recommend reporting the rental on a partnership return. Here's why.

- The owners are not married to each other, and therefore not filing a joint return (and probably never will)

- Makes it easier for each partner/owner to report their share of income, expenses and depreciation via the K-1 issued by the partnership, on their personal 1040 tax return.

- Makes it simpler if any one partner wants to sell or otherwise dispose of their share - even to the other partner(s).

- Makes it simpler to deal with, should one of the partner's die.

-Makes it simpler do deal with an uneven distribution of rental income and/or expenses, as well as depreciation if the ownership percentages are not equal among the partners.

There's more. But that's what comes to mind in the moment.

JaniceKnight

I understand that Turbo Tax does not determine the % amount of ownership for rental depreciation and lists only 100% of the amount. Does this mean that I have to override the amount that Turbo Tax puts on Schedule E? If so, does that mean that everybody who co-owns rental property can not file? It’s saying that, since I overrode a figure I must paper file.

Carl11_2

Employee

Generally, two things can happen when you execute an over ride.

- The TurboTax 100% accuracy guarantee is nullified

- You will not be able to e-file. You will have to print, sign and mail the tax return.

Generally, if you report 100% ownership of the property, and just enter half of everything (your half of the cost basis, your half of all expenses, your half of all income, etc.) then it all works out fine.

JaniceKnight

I just discovered that, since 2005, I have claimed 100% of the depreciation instead of 50%. I errored in assuming that TurboTax was automatically calculating the correct percentage. Obviously I’ll need to file amended returns. How do I correct the error for 2021?

ecfisher

Hi @Carl11_2 - I have exactly the same situation as described by the OP: shared ownership of rental property with my brother. The partnership 1065 return and K-1 presentation of rental income and expenses makes sense for all the reasons you describe in this comment.

One question: title to property is held in our names personally, so how should we record depreciation expense? Our CPA suggested recording depreciation on 1040 Sch. E (50% for each partner), and to charge our partnership fair market rent for the property (also reported on 1040 Sch. E) which it will then “sublease” to the end-tenant. This way rent to end-tenant and operating expenses of the property will be presented on 1065 form 8825 and allocated to each partner via K-1s, but depreciation expense will be handled on 1040s as the property is owned by the individual partners and not the partnership.

Do you agree with this approach? I’ve noticed in your prior posts a strong bias for simplicity which I appreciate.

Mike9241

one suggestion is to include the property in the partnership return and take the depreciation there. I don't see the IRS having a problem with this because the depreciation will be matched with the revenue and other expenses.

another way is there is a section in the K-1 for partner expenses. you would each (if both using Turbotax) enter in the asset entry worksheet your cost basis based on your % of ownership and Turbotax will compute the depreciation. the net income or loss reported would be the net of the cash income/expenses and the depreciation. also the won't muck up the QBI deduction.

or follow your CPAs advice which I think is excessively complicated for your situation.