How can I add a new replacement asset after 1031 exchange with 17.93 left on it's depreciation schedule

[Bethboat]

I did a 1031 exchange that bridged 2022 and 2023 and to make it even more complicated I replaced 1 property with 2 properties and had boot. I can't figure out how to enter the replacement assets so that they have the correct depreciation.

How can I force Turbo tax to have a depreciation schedule of the remaining 17.93 yrs rather than the 27.5?

I'm using Turbotax Business and I've used it for years, but due to the complexity of the 1031, I had an accountant do my 2022 taxes, so I don't have a 2022 Turbotax return to load into my 2023 Turbotax.

I'm having to enter all of my assets from scratch.

Since I sold one, and bought two, I'm setting up two properties that would have the same depreciation schedule as the relinquished property, but I'm dividing the basis by 2. 

The relinquished property had a yearly depreciation of $ 11,172 with 17.93 yrs left on it's depreciation schedule. 

Turbotax keeps giving me an asset life of 27.5 years, which lowers my depreciation deduction considerably. It drops it down to $7284.

How can I force Turbo tax to have a depreciation schedule of the remaining 17.93 yrs rather than the 27.5?

The accountant has given me the depreciation schedules so I have all the correct numbers so I won't bore you with the details.

Any help would be greatly appreciated.

Thank- you!

[tagteam]

I'll pass on whether this is technically correct and just post the procedure below.

First of all, you're not going to get TurboTax Business to compute depreciation for a 17.93-year recovery period. Rather, you will have to enter all of the figures yourself in Forms Mode.

After you enter each property in the interview, you can enter Forms Mode and bring up the Federal Asset Entry Worksheet. Change the Type of asset to "Z" and then enter your data.

You can then check your properties on Schedule E or Form 8825 (depending upon whether you're doing a 1041, 1065, or 1120-S).

[Bethboat]

Thank you for replying to my question.

I tried changing the type to Z and putting in all my information but when I get to the "Asset Class" if I put in Rental Real Estate, it still won't let me change the Recovery period of 27.50 yrs.

If I put "no entry" in the Asset class, it will let me put in 17.93.  

Should I leave it as no entry?  I'm afraid I'm creating more problems by not having the property be classified in the correct class.

Here's what else I've tried:

I put in all the original information from the relinquished property, ie the date in service (ie 10/01/11), original purchase and land and also the Prior Depreciation.  Turbotax them generates the correct payment schedule of the first property.  Then I go in and change the Date in Service to the purchase date of the replacement property (ie 9/28/23).  Turbotax then generates an Asset Life History that is basically correct but it's starting on 9/28/23 and going for 27.5 yrs.  Can I just use that schedule, but only record depreciation for the first 17.93 yrs?

That does mess with the basis of the replacement property. 

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[tagteam]

Did you select the "Z" code from the dropdown?

[Bethboat]

Yes, I entered Z at the top of the form and that let me fill it in, but you have to specify the type of asset down toward the bottom of the page near the line where you enter the recovery period and that's where I specified real estate and then it changed the recovery period to 27.5 and wouldn't let me change it.

[tagteam]

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@Bethboat wrote:

....that's where I specified real estate and then it changed the recovery period to 27.5 and wouldn't let me change it.

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Exactly my point earlier, to wit: you're not going to be able to do that so you need to select No entry for that line. Doing so will most likely turn that line, and perhaps another, red which means you may not be able to e-file the return.

Again, this is a completely non-standard entry method for TurboTax so you have to improvise. 

[Bethboat]

Oh, okay. Thank you.

Are there tax implications that I need to be aware of that would be caused by changing a real estate asset to a not specified asset and using the 17.93?  Is the depreciation schedule just for my use?

[tagteam]

Yes, and I would again recommend that you use the same accountant you used last year to prepare your tax return for 2023 (I'm assuming this is a business return).

[Critter-3]

The TT program doesn't handle the 1031 exchange automatically when exchanging one property for 2 and   the entries must be done in the FORMS entry mode by you so you must know exactly what needs to be entered and where. Doing so will void the accuracy guarantee and may keep you from efiling.  Thus I highly recommend you seek professional assistance for completing this return so it is done correctly. 

[Rick19744]

In addition to all the other discussion regarding depreciation,  et. al. you indicate that you received "boot".

This means that you have gain which will be taxed.

Not sure if the accountant provided you with that detail as well.

My recommendation would be to use the accountant for this years return.

TT is designed for the masses, and your scenario is outside of that general realm.  Can it be accomplished within TT, definitely, but not without you understanding what needs to be done and how it needs to be input in order to arrive at the correct bottom line.

[Bethboat]

Thank you for responding to my question. Would TurboTax Live Assisted  Business  be able to help me with my situation?  

[Bethboat]

Thank you for responding to my question. Would TurboTax Live Assisted  Business  be able to help me with my situation?  

[tagteam]

You should contact Support and ask.

How do I contact TurboTax? (intuit.com)

[AmeliesUncle]

You don't directly depreciate over 17.93 years.

You continue to depreciate the 'carryover Basis'.  So you would enter a placed in service date of 2014-ish (the placed in service date of the relinquished property).  So indirectly, it will continue to depreciate the remaining Basis over another 17.93 years.

Unless the replacement properties each had the same value, you don't divide the Basis by exactly two.  You divide the Basis based on the proportion of the Fair Market Value of each one.    For example, if one property cost $400,000 and the other property cost $600,000, then you would allocate 40% of the Basis to one property and 60% of the Basis to the other property.

[Bethboat]

Thank you all for helping me with my question. After speaking with my accountant, here's what I did:

I entered the properties with the basis info of relinquished property but the date in service of the replacement property.  This gave me the correct prorated depreciation for this year and also the correct annual depreciation. The only problem was that the depreciation schedule did include the prior depreciation so it went on for 27.5 yrs instead of the shorter period of time. My accountant said that as long as I tracked the prior depreciation and when the depreciation is used up,  I could use that schedule.