California Depreciation Off Balance in 2021 Partnerships

[lina]

2017- 2019 Depreciation assets that I have had no issues with, is now throwing my Partnership 568 tax return (CA) off balance.

Federal and State was deprecating differently and has been that way since the assets were placed in service. All of a sudden in 2021 I am off balance with state only and it is the difference between Fed and State depreciation.

Federal balances perfectly, state does as well except for the depreciation. I double checked 2018, 2019 and 2020 and everything has carried over exactly as it should. 

I am not sure what to do. Is this a Lacerte issue? How do I fix this?

One client is only off $55. But another client is off $1300. I am not sure where I should adjust to fix this. 

[joshuabarksatlcs]

Need to alert Lacerte.

In the 2021 Partnership software, State return M-2 Line 3, Book Income is pulling the Tax Income (Line 9 of M-1) instead of the Book Income (Line 1 of M-1). 

In the 2020 Partnership software, State return M-2 Line 3 pulls the Book income (Line 1 of M-1).

I have sent an inquiry to Lacerte Support.

Stay tuned.

[lina]

Thank you!!

[VickyO]

I am having the exact same issue.  I think it has to do with change to tax basis

[lina]

Did you manually make an adjustment or waiting on Lacerte?

[VickyO]

We track state capital accounts which are different from federal due to depreciation. 

My state out of balance issue was resolved by selecting 3 on Screen 25 - Balance Sheet Miscellaneous - Current year book depreciation to be Federal/state.  The default is Federal so Lacerte was using federal depreciation for California books, which threw everything off balance.

[lina]

Thank you so much!! It worked. 

[irp48]

Thanks. Putting 3 in screen 25 (Federal/State) worked to balance the State Balance Sheet

[JABCPA]

Also had this problem and did this to solve but definitely a glitch that Lacerte needs to fix

[claire]

Tried this as well, but I am still out of balance by my fed/CA depreciation difference.  Also notified Lacerte; thank you for highlighting this issue.

[joshuabarksatlcs]

Below is the response from Lacerte.  The explanation seemed to be in line with the IRS (and CA- conformed) requirement of reporting the tax basis.  (@VickyO was correct.)   

Line 3 of Sch M-2 is now the tax income (Line 9 of Sch 1) and not Line 1 as in the past.   If you report Sch L with book and not tax basis (or Sch L for CA with Fed or book basis) for the capital account, act accordingly.    

Hello 

Per the California Schedule K-1 instructions, starting in 2021, the capital account must be kept on a tax basis.  It also goes on to say that the amounts on Schedule M-2 should equal the total of all the amounts reported on the K-1 capital account specifically columns C, D and E.  On the return that was attached, there was a large difference due to bonus depreciation being taken on the Federal but not on the state return.  An M2 adjustment for other decreases will need to be made for this on the California return.

Thank you for being a Lacerte customer!
We appreciate your business. Please let us know if we
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Sincerely,

Kenneth
Lacerte Support

[claire]

Did this fix work for you? I still can't make this work.  Due to bonus depreciation on QIP, there is a large difference between CA and fed depreciation expense.  

[lina]

I was off balance on 2 clients and Putting 3 in screen 25 (Federal/State) worked to balance the State Balance Sheet fixed it.

[Maureen945]

I am having the same issue! There was a couple of assets sold, and because of the depreciation and gain difference, State Return M2 is pulling down the tax income instead of book income. I am so glad I checked here.  Hopefully they will have it resolved??

[joshuabarksatlcs]

There is nothing "to fix".  Beginning this year, Line 3 of M-2 is pulling Line 9 of M-1 instead of Line 1 of M-1.  The user just have to reconcile between the TAX basis to the balance sheet -

Two simple ways:

1.  use the CA tax basis for Sch L.  Keep two sets of Sch L's when there are book/tax and/or CA/fed differences.  

2,  live and let live the difference between the M-2 capital (tax basis) and the Sch L capital balance

3.  select NOT to use the federal Sch L for CA. 

But then, didnt i just say two???

[claire]

Maureen, this is the response I received from Lacerte, and option 2 has been working for me.

I would recommend you follow one of the following solutions.  1. Open input screen 24.011 for California Balance sheet if different and enter the amount of $xxxx under ending depreciation.  This will get your return in balance.  2. Similar to option 1, open input screen 24 and remove the less accumulated depreciation for Federal so that it automatically computes.  Follow this up by opening input screen 25 balance sheet miscellaneous and put in an option 3 for Federal/State on code 1 "current year book depreciation" so that the state return will use state computed depreciation amounts while still allowing the Federal return to compute the $xxxx of depreciation.  This method will also get the return in balance.

(The first  dollar amount referenced in the Lacerte response was the CA depreciation expense.  The second dollar amount was the federal depreciation.) 

[SherriC62]

Thank you so much.  This was driving me crazy. Worked like a charm!