Hi, I have a foreign rental condo in Canada that I purchased in 2014 as my personal home. I moved to the US in Feb 2019 and began to rent out this apartment. I am confused about how I should be depreciating this asset. Last year when my taxes were professionally filed, it was the first year that the apartment was being rented and for depreciation it was assumed to have a life of 39.5 years using a half year method under the Alternative Depreciation System. When I go to enter my information in Turbotax this year, it gives me a recovery period of 27.5 years. Can someone please explain what the correct depreciation should be and also what happens if the recovery period changes this year from last? Turbotax is not letting me adjust the 27.5 years. I know that the depreciation differs based on US versus foreign property and if put into use before 2018. Any help would be much appreciated.

Carl11_2

Employee

Hi, I have a foreign rental condo in Canada that I purchased in 2014 as my personal home. I moved to the US in Feb 2019 and began to rent out this apartment. I am confused about how I should be depreciating this asset. Last year when my taxes were professionally filed, it was the first year that the apartment was being rented and for depreciation it was assumed to have a life of 39.5 years using a half year method under the Alternative Depreciation System.

Nope. Because the property was placed in service as a rental "after" 2017, it gets depreciated over 30 years.

When I go to enter my information in Turbotax this year, it gives me a recovery period of 27.5 years.

That's because in the property profile section you did not change the default selection from United States or U.S. Possession, to Foreign Country. Work back through the property profile section again and make that change. You "may" have to delete/re-enter the property in the Assets/Depreciation section to, so it will pick up the correct MACRS depreciation period of 30 years.

Can someone please explain what the correct depreciation should be and also what happens if the recovery period changes this year from last? Turbotax is not letting me adjust the 27.5 years.

Since 2019 was the first year the property was placed in service, there's really no need to amend that return. Just make sure when you enter the asset on your 2020 return with an in service date of whatever month in 2019, you correct the prior year's depreciation to the amount that was actually taken on the 2019 return. Then TTX 2020 will adjust the 2020 depreciation accordingly and get you on the right track.

I know that the depreciation differs based on US versus foreign property and if put into use before 2018.

According you you, the property was placed in service as a rental in 2019. Therefore the depreciation period is 30 years.

isamom1982

@Carl11_2 I have foreign rental property since 2007 and 2005 respectively that I depreciated on TT for years but now need to completely re-enter**. However, I can not figure out how to get my old 40 year ALT/MM depreciation data to show up correctly in the Form 4562. I tried to change things vis step-by-step as instructed (also in this forum) and via "Form View" but It does not allow me to choose the setting combination from the previous years. For example, it forces a choice of "asset class" and when I choose "Residential rental" (which it is, then that forces 27.5 years, etc. - If I force that to 40 years manually, the Asset Class box turns red and the warning icon pops up next to the form...WHAT CAN I DO??

I have depreciated them through the TT program without issues for years. Due to the conventions back then , the depreciation period was 40 years and the parameters that show on Form 4562 show Method/Convention SL/MM. A fews ago I also had PWC look over my taxes and they confirmed this was correct.

** The reason for the re-entry need is that - like for many others - my 2021 TT Home & Business desktop edition Amort & depreciation area is constantly showing "Still under construction" and the only help the TT agents can provide after over 5 hours (yes, that is FIVE) is to do a "clean install" and not import any of my historic data.

AmandaTurner12191984

Make sure that not only the address is correctly entered as Foreign you also want to make sure that this option is selected as well to ensure the 30-40 year depreciation. (dependent on when placed in service).