TurboTax Depreciation changes once expenses change

Forum|Forum|3 years ago
March 13, 2023
3 replies
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Hi, I just observed that Turbo Tax will reduce the depreciation expense when I add more expenses for my rental property and my total rental income is never positive and always -1 or 0 because the depreciation total + expenses will always be over the rental income. Why is it always -1 or 0?

Example with numbers: total rental income $30000, when expenses are $20000, depreciation is $10000; when expenses are $21000, depreciation is $9000. The calculated depreciation is actually like $13000.

thanks!

AliciaP1

Your deductions from rental income are considered passive deductions. Passive deductions are limited to your passive income for the year. It will, however, be calculated as a passive loss carryforward to be used in the future when/if you have additional passive income.

See Passive Activity Limits for more information.

@desert_researcher

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desert_researcherAuthor

@AliciaP1 Thanks for the reply and the reference. I read the page for Publication 527 and did find limit on expense which is $1,080,000 for 2022. My depreciation deduction is only slightly above $10,000 like how it's in my example. I don't see the connection with that limit.

Is it because the software try to not to create much loss so to report only portion of it?

DianeW777

It depends. The rules for rental real estate have a special allowance which exceeds the rental income and other passive income. When you are in the PropertyInfo (TurboTax Online) or in the Property Profile (TurboTax Desktop) you must answer the active participation question with a 'Yes'..

Active participation is a requirement to be allowed to reduce other income by the loss on your rental property. There is also an income limit that begins to reduce that amount.

Phaseout Rule: The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

Sign into your TurboTax return > Search (upper right) > Type rentals > Press enter > Click on the Jump to... link > Edit next to the Rental Activity > Edit next to the Property Profile or General Info > Continue to the question about active participation
Continue to the end of the section for TurboTax to save your changes.

If you do not have income above the limits shown and you are being limited on your rental loss please consider sending a diagnostic file. Please @DianeW777 when you place the token here.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions:

TurboTax Online:

Go to the black panel on the left side of your program and select Tax Tools.

Then select Tools below Tax Tools.
A window will pop up which says Tools Center.
On this screen, select Share my file with Agent.
You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.

TurboTax CD/Download:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

Click on Online in the top left menu of TurboTax CD/Download for Windows
Select 'Send Tax File to Agent'
Write down or send an image of your token number then place in this issue.
We can then review your exact scenario for a solution.
Please also tell us any states included in the return.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

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AmeliesUncle

@desert_researcher wrote:
Example with numbers: total rental income $30000, when expenses are $20000, depreciation is $10000; when expenses are $21000, depreciation is $9000. The calculated depreciation is actually like $13000.

Did you enter "personal days" of use?

desert_researcherAuthor

Yes. The percentage day for rental is 83.84% of 2022. The rest is personal. The two versions have the same input of this percentage but the reported depreciation are different and neither of them is about this number. One is 67% of the total depreciation reported on Schedule E and the other is 77% when less other expenses were input.

I'm talking about Schedule E Worksheet > row 5 to 20 for Expenses. There are all empty cells under the column (b), which seems against how it says: "Enter % if not 100.00", because columns (c) Reported On Schedule E has different numbers form column (a) Total. All other (c) numbers are 83.84% consistent with the percentage of rental except for the depreciation row.

AmeliesUncle

@desert_researcher wrote:
Yes. The percentage day for rental is 83.84% of 2022. The rest is personal.

This is what is triggering it.

Was this back-and-forth between personal use and rental use? Or was it is 100% personal, then converted to 100% rental (over one year)?

If it was a back-and-forth, you are using the home over 10% of the rental days (and over 14 total personal days), and that triggers the "Vacation Home" limits. That essentially means that in most cases you can't claim a loss, but the unallowed amounts will be carried to future years if/when there is a profit.

desert_researcherAuthor

@AmeliesUncle and @Carl11_2 helped me the most to resolve the issue. I misunderstood the concept of "personal use": when I typed the days of Personal Use, I typed it incorrectly. Any personal use will trigger a limit (possibly the vocation home limit) and will adjust the depreciation to a 0 balance between total rental income and expenses. Here is the screenshot of where I made the mistake. Once this number is fixed, everything seems correct and no manual prorating or other calculation.

Thank you everyone who responded on this thread!