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@FMES wrote:

As for the researched, I can't find anything on point as to if excess vacation property depreciation is considered allowable or not for purpose of the Form 4797.  If does seem fair that it should be if you can't actually deduct it... then again life isn't fair.

On the Schedule E input screen, Lacerte keeps tabs of the excess vacation depreciation as a "carryover".   This is what makes me believe that their is some benefit in the year of sale either on current year Schedule E or Form 4797.  

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If the depreciation is not used, it does NOT reduce the Basis on 4797.  But the questionable thing is whether or not the unused amounts should be 'released' or not when the property is sold.  From what I remember, the 'leaning' is towards "yes", but that it is a "gray area".

So from what  you are saying, Lacerte is definitely showing it wrong for you, one way or the other.   

• *IF* the carryover losses ARE usable when it is sold, they should be used AND the Basis is reduced on 4797. 
• *IF* the carryover losses are NOT usable, then the Basis should NOT be reduced on 4797 by the unused amount.
• It seems like Lacerte is doing it wrong by not allowing the losses, but still reducing the Basis.

The "carryover" definitely CAN be used if there is a profit for the year on Schedule E.  The questionable thing is whether or not it can be used when the property is sold.  But as I said above, from what I remember the 'leaning' is towards "yes", they can be used, but that it is a "gray area".