Question

Why do I get a depreciation deduction that is about 10x larger than TTax when I take 27.5 year depreciation and prorate it for 19 rental days on my residence?

Forum|Forum|4 years ago
April 4, 2022
1 reply
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TTax correctly treats it as rental business income on Schedule E and form 4562.

TurboTax Online

How did you calculate the depreciation for 2021? If you put the property in service in 2021, did you account for the mid year or half year depreciation.

If you start using a property during a tax year that first year, the depreciation will likely be half of what it would be for the rest of the years. Example. If you bought a house for $100,000 depreciation for all years but the first and last would be $3,636 using straight line method. The first and last year the depreciation would only be $1,818.

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S

schmieder1612Author

This example should help: I built the house for $125,000 in 1980 on my pre-owed property. I then prorated it for the 19 days of rental by multiplying it by 19/365 = 0.0521. Then to get the basis I took 0.0521 x $125000 = $6507 which is the number I expected to find on Schedule E, Form 4562, Line 19 column c, Basis for depreciation. By comparison they by got $5210, i.e. about $700 more. Then I divided my $6507 basis by 27.5 years = $237 for my deduction in Column 19g. By comparison TTax got $24 by whatever mysterious method they were using. What did I/they do wrong?

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schmieder1612Author

Another example illustrates that an 8 year old addition/remodel didn't make much total difference to their computational approach compared to the 41 year old basic residence, in case that age was an issue. I did the remodel in 2013 for $150,000. The basis for was computed as 19/365 => 0.052 x $150,000 = $7808. That compares more favorably to the TTax result of $7815 for only a minor difference compared to the $1297 smaller result they got for the 41 year old house above (I mistakenly said they got about $700 more) and suggests there maybe was a property age explanation involved. But then I calculated the deduction as $7808/27.5 yrs = $284. Yet TTax got the vastly different deduction result of $36 which was lower than mine by 8x versus the 10x difference from the 41 year old property. So from an age standpoint the overall differences were not that much. Incidentally, in case the type of rental makes a difference, my rental was to NBC Universal Content Productions for 2 episodes of a 5 episode Hulu movie film. The period was from 11/24/21 to 12/31/21. So while the span was 38 days, they were only in my house for a total of 19 days sporadically spread over that time. The total rental period extended into 2022 for another 8 days spread over 1/11/22 to about 2/23/22 when they filmed the remaining 3 episodes. Since that period was less than the 14 day exclusion period I don't believe I will have to pay taxes on it in 2022.