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Turbotax's computation of depreciation on rental property

Forum|Forum|2 years ago
January 24, 2024
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I'm trying to figure out how Turbotax is computing the depreciation on my vacation rental house. It comes up with a number that is similar, but not identical, to the number I compute.

Here's the information it's using:

cost: $515,819

land cost: $13,721

percent of business use: 72%

prior depreciation: $6,159

I compute the correct amount as: (515,819-13,721)*0.72/27.5 = $13,146

by subtracting the land value out from the basis, multiplying by the percentage of business use (the fraction of days of occupancy that are rentals), and dividing by the depreciation period for residential rental buildings.

Turbotax is computing $13,264.

I guess somehow the $6,159 prior depreciation is entering into the calculation, but I have no idea how. FWIW, the $6,159 was from last year, the year we acquired the property. We owned it for 0.7083 fraction of the year, and the business use percentage that year was 47.62%.

I even tried subtracting the $6159 from the basis and dividing by 27.5-0.7083 years, but that didn't give Turbotax's number either.

Best answer by Mike9241

This is a turbotax issue (BUG) because the business use % changed

if you were to view the asset life history Turbotax would think the first-year depreciation was 9312 because it would use 72% for the first-year business use. Depreciable basis first-year thus 361511 (72% not the real %) put into service in April.

PUB 946 table A-6 factor for year 1 April 2.576% * 361511 = 9312

so turbotax thinks you have under-depreciated the property and will do a catch-up (which is wrong and may even be in violation of the tax laws which would normally require you to amend if all years are open or file form 3115 if one or more years are closed and thus can't be amended) for each year

9312-6159= 3153

remaining life 26.7917 years

3153/26.7917 = 118 additional depreciation per year so 13146 which is correct turns into

13146+118=13264

however in another place in the asset information it uses the depreciation actually taken in prior years

Turbotax should only be using the IRS table % applied to the depreciable basis for the year but I see no way to select this. Your situation will become even worse if the % business use changes from year to year because Turbotax, based on how it is now, will continually correct all depreciation taken

for example, if business use dropped to 10% TT would assume all prior depreciation and current year should have been based on 10%

same as above

first year should be 1293

-6159=-4866/26.7917 = -182

actual s/b 1826 but TT 1826-182=1644

your choices are to let it ride, override which will prevent e-filing, or use other non TT software unless TT fixes the bug.

M

Mike9241Answer

This is a turbotax issue (BUG) because the business use % changed

if you were to view the asset life history Turbotax would think the first-year depreciation was 9312 because it would use 72% for the first-year business use. Depreciable basis first-year thus 361511 (72% not the real %) put into service in April.

PUB 946 table A-6 factor for year 1 April 2.576% * 361511 = 9312

so turbotax thinks you have under-depreciated the property and will do a catch-up (which is wrong and may even be in violation of the tax laws which would normally require you to amend if all years are open or file form 3115 if one or more years are closed and thus can't be amended) for each year

9312-6159= 3153

remaining life 26.7917 years

3153/26.7917 = 118 additional depreciation per year so 13146 which is correct turns into

13146+118=13264

however in another place in the asset information it uses the depreciation actually taken in prior years

Turbotax should only be using the IRS table % applied to the depreciable basis for the year but I see no way to select this. Your situation will become even worse if the % business use changes from year to year because Turbotax, based on how it is now, will continually correct all depreciation taken

for example, if business use dropped to 10% TT would assume all prior depreciation and current year should have been based on 10%

same as above

first year should be 1293

-6159=-4866/26.7917 = -182

actual s/b 1826 but TT 1826-182=1644

your choices are to let it ride, override which will prevent e-filing, or use other non TT software unless TT fixes the bug.

R

RustyShacklefordAuthor

Employee

Well, I thought I'd figured it out - before I read your reply.

The formula [(515,819-13721)*0.72-6159] / (27.5-0.7083) does yield Turbotax's result of $13,264.

But it's just coincidence.

Carl11_2

Employee

Something else I just caught in your original post.

percentage of business use (the fraction of days of occupancy that are rentals), and dividing by the depreciation period for residential rental buildings.

Totally wrong. For rental property, you use the MM (Mid Month) convention, regardless of what day of that month the property was placed in service.

See IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf and use the MACRS worksheet that starts on page 36. For item #6 of that worksheet, use Table A-6 on page 71.

R

RustyShacklefordAuthor

Employee

Sounds like you're not saying the computation of percent of business use is wrong, but rather that the number for percentage of the year I owned the asset is wrong.

But I think it's doing that more or less correctly. Placed into service April 29, and there are 105 days between beginning of year and April 15, so should've said I owned it for (365-105)/365 = 0.712 of a year. That's a lot closer to 0.7083 than if it used April 29.

I'm just gonna accept Turbotax's answer and keep my fingers crossed. Paid for the bloody program ...