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jrgcpa
jrgcpa, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8
Experience:  Over 30 years as a practicing CPA
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Customer Question

I am preparing an LLC return using TurboTax for Business 2012. Depreciation shows under ordinary income but the related asset is listed under rental real estate property. Not sure what I am doing wrong, if anything.
Submitted: 1 year ago.
Category: Tax
Expert:  jrgcpa replied 1 year ago.
Hello. I will try to help you with your Turbo Tax question.

Normally on the same page or section of the program that you use when entering rent income and expenses for the rental property,there is a field for "Depreciation expense". Normally,close to the Depreciation Expense field there is a button to click that allows you to setup the depreciation of the rental property. It is important that you set up the depreciation of the rental property by using this button, rather than the generic depreciation entry field that is tied to the form 4562.

I hope this makes sense to you. If not, please let me know and I will attempt to give you further explanation.

Thank you.
Customer: replied 1 year ago.

That is what I selected and it is creating a 8825 and showing the depreciation under ordinary income. Under the forms a Depreciation Report shows and when I open it, it is a 4562.

Expert:  jrgcpa replied 1 year ago.
Well the fact that you have created a form 8825 is good, because that is the appropriate form for real estate rental activities carried out by a LLC.

Also, the fact that you are generating a form 4562 is good.

When you say that the program is "showing the depreciation under ordinary income", please explain exactly where on the form 1065 (i.e., what page number and/or schedule) the expense is showing up.

I am wondering if you are attempting to depreciate or expense any items under Section 179 ? If so,that expense amount will not flow to the 8825, but will be a separately reported item on both schedule K of the 1065 and the Schedule K-1 created for each LLC member.

If possible could you please let me know the specific assets you are attempting to write off and what methods of depreciation you are using.

Thank you
Customer: replied 1 year ago.

No section 179. That column shows as Zero on the 4562 form. Depreciation shows on the 8825 on line 14. On 1065 is shows on line 1, Ordinary business income, on pg 4. This causes the generation of the self-employment worksheet which is not correct.

Expert:  jrgcpa replied 1 year ago.

Ok. Thanks for being patient here. We will get to the bottom of this. Where does the rental income and other expenses (besides depreciation) show on the return? It is clear that we are dealing with an issue as to how you have the rental activity classified. The classification of "active" trade or business versus "passive activity" will create ordinary income. Again, can you tell me where the income and other expenses are showing up? I am specifically concerned about what, if anything, is showing on Page 4, Line 2 as Rental Income (Loss).

 

I am thinking that you probably are going to end up having to completely remove the existing form 4562 that is affecting ordinary income and re-enter the asset/depreciation information through the form 8825 entry screen.

 

Thanks.

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