I have a very confusing depreciation situation. Can anyone help?

Question

Rental property is a duplex.

2019 - Lived in one side, rented the other. Claimed depreciation. (Not sure what options I chose to depreciate with.)

2020 - Lived in one side, rented the other. Did not claim depreciation. (Didn't want to do it wrong because I didn't remember how I did it in 2019.)

2021 - Rented out both sides. Doing my taxes now and want to claim depreciation. (Still not sure how I did it the first year.)

I know I'm in desperate need of a CPA and should have used one to begin with but I'm learning as I go & Currently, I cant find a CPA that's taking new clients.

I have some very confusing questions regarding this situation and an answer to any of them is much appreciated!

Questions.

1. Does it matter what options I picked? e.g - 27.5 year property, 25, year property. Also MACRS 200%, 150% or straight line.

2. If it does matter what I used the first year. How do I find what I chose? (Does not show on transcripts from IRS & cant find it in transcripts from the software I used.)

3. Do I HAVE to do the amendment for 2020? If not what am I missing out on if I don't?

4. Does me renting out both sides in 2021 and in future years change the way I have to do it even if I found out how I did it the first year?

5. If it does change the way I have to do it do I need to let someone know I'm changing it and why?

Greg Scott · Answer

You should NEVER use the taxable value to set your depreciation.  Your depreciation is based on what you paid minus land costs the year you purchased. Some people use the land taxable value for the land valuation, but many CPAs don't like that if it appears low.  Despite being a government assessment, the IRS may not agree.  With that in mind, you may need or want to restate your 2019 taxes too.

Greg Scott · Answer

Yes, you need a CPA. There are plenty so find one before you do your 2021 taxes.  You don't need one even in your area or State.  Federal taxes are the hardest and most state returns are a variant of Federal so CPAs that do taxes will work across state lines.

I'll try to answer your questions best I can, and I'm not a CPA

1) You most likely used 27.5 years because you should have done a cost segregation to take accelerated depreciation.

2) Yes, it would.  You should be able to figure this out from your 2019 taxes.  Typically you would have subtracted land from the purchase price then divided by 27.5 years.  However, the first year you also have to factor in what month went into service.

3)  I don't think you have to, but doing so would probably be a smart choice.

4&5) Best left to a CPA

Matt Devincenzo · Answer

Here's what I would do. File your 2021 taxes as an extension, that buys you 6 months to find someone to take you as a client and do your taxes. Have them review 2019, amend 2020 and file 2021. Obviously when they review your situation they'll be better equipped to tell you what if anything else may need to be done in addition to the issues you've already noted.

The reason you're not finding anyone to take a new client is you have 1 month to the filing deadline, and they are all slammed with getting things wrapped up and filed ASAP. You might find some you've already talked to would entertain you as a client IF they know they have 6-7 months to actually onboard and sort through your situation. If not, then you have the time to find someone that will take you on.

Todd Rasmussen · Answer

A) Take your 2019 Depreciation and multiply it by 27.5. Does that match your depreciable expenses in 2019 (Cost of home plus some eligible closing costs minus value of land)?

B) Did you make any capital investment in the property in 2020 or 2021?

If A=yes and B=no, then your 2019 and 2020 depreciation should be the same and your 2021 depreciation should be twice what you claimed in 2019.

If A=no, then you messed up 2019. If you used tax valuation anywhere to figure depreciation, you messed up 2019.

If A=yes, and B=yes then 2019, 2020, and 2021 will all be different amounts.

I use excel to keep track of depreciation so I can answer the question, "wtf did I do last year?" Stessa is a free web based service that can also track depreciation for you as well.

Something like this:

Depreciation   and Capital Expenditures

410 Pacific

Item

Property

Closing

Flooring

Appliances

Remodeling

Windows

In Service

2020- March

2021- Mar

2021- Feb

2021- Oct

2021- May

Basis

$  37,419.00

$     965.60

$  5,712.00

$  2,920.00

$  7,720.00

$  3,800.00

Recovery

27.5 yrs

5 Yrs

27.5 yrs

20 Yrs

Convention

MM  /  SL

MM / SL

Year

Total

Land ($9,355)

2017

$                               -

2018

$                               -

2019

$                               -

2020

$                  1,246.27

$    1,077.29

$     168.98

2021

$                  3,241.54

$    1,360.55

$     193.12

$     999.60

$     511.00

$        58.52

$     118.75

2022

$                  3,750.77

$    1,360.55

$     193.12

$  1,142.40

$     584.00

$     280.70

$     190.00

2023

$                  3,750.77

$    1,360.55

$     193.12

$  1,142.40

$     584.00

$     280.70

$     190.00

2024

$                  3,750.77

$    1,360.55

$     193.12

$  1,142.40

$     584.00

$     280.70

$     190.00

2025

$                  3,581.79

$    1,360.55

$        24.14

$  1,142.40

$     584.00

$     280.70

$     190.00

2026

$                  2,047.05

$    1,360.55

$     142.80

$        73.00

$     280.70

$     190.00

2027

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2028

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2029

$                  1,831.63

$    1,360.93

$     280.70

$     190.00

2030

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2031

$                  1,831.71

$    1,360.93

$     280.78

$     190.00

2032

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2033

$                  1,831.71

$    1,360.93

$     280.78

$     190.00

2034

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2035

$                  1,831.71

$    1,360.93

$     280.78

$     190.00

2036

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2037

$                  1,831.71

$    1,360.93

$     280.78

$     190.00

2038

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2039

$                  1,831.71

$    1,360.93

$     280.78

$     190.00

2040

$                  1,831.25

$    1,360.55

$     280.70

$     190.00

2041

$                  1,712.96

$    1,360.93

$     280.78

$        71.25

2042

$                  1,641.25

$    1,360.55

$     280.70

2043

$                  1,641.71

$    1,360.93

$     280.78

2044

$                  1,641.25

$    1,360.55

$     280.70

2045

$                  1,641.71

$    1,360.93

$     280.78

2046

$                  1,641.25

$    1,360.55

$     280.70

2047

$                  1,244.69

$        963.91

$     280.78

2048

$                      280.70

$     280.70

2049

$                        81.91

$        81.91

2050

$                               -

De Rasche · Answer

It is my understanding you pay back depreciation whether you took it or not, best check with a tax pro.  If true then may want to redo year you did not claim any depreciation.

Sean Wallace · Answer

Thanks for all the replies everyone. I decided to go on Turbo Tax and have someone do it for me on there. It's taken me all day to upload all the documents but I have a CPA reaching out to me to go over everything soon. Definitely keeping things more organized from now on though.

Sean Wallace · Answer

Thanks a bunch for the reply!

I really wish I could get some to call me back. I've had one call me but he didn't seem to be interested in doing the amendment.

I just found out the method I used for depreciation. Do you now if the depreciation always goes off the tax valuation from the year you bought it or do you use the numbers from each years land valuation?

I have a very confusing depreciation situation. Can anyone help?

Most Popular Reply