Vacation Home Depreciation

[Mikel5]

The program will not take a deduction for Vacation Home Depreciation carryover from prior years even though I am showing a complete disposition of the property. Is there a prompt for this that I am missing? If this is not deductible why does the program carry it over? Currently the program shows the correct amount on the Schedule E, but takes no deduction, leaving the full amount as carryover. There is no carryover to the 2020 smart worksheet.

[Just-Lisa-Now-]

Youve checked Box H for complete disposition?

[TaxGuyBill]

When you say "Vacation Home",  you mean a home that is used for BOTH personal use and rental use, right?

Although Passive Loss carryovers are fully deductible in the year of sale, I don't think there is any clear guidance if Vacation Home carryovers are deductible.  Because ProSeries does not release the losses, Intuit is essentially taking the stand that they are not deductible.

After researching the issue, if you feel they should be deductible, you will need to manually enter it or override the software to allow the carryover expenses.

However, if you determine that the carryover expenses are NOT deductible, then the unused depreciation will not decrease the Basis of the property.

[Mikel5]

Yes, thanks.

[Mikel5]

I assume this topic has come up before since you are aware that Proseries doesn't give the deduction.

It doesn't make sense to me that property basis should be reduced by depreciation that can't be 

deducted. I guess I'll continue to research this. Thanks for your help.

[TaxGuyBill]

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@Mikel5 wrote:

It doesn't make sense to me that property basis should be reduced by depreciation that can't be deducted. 

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Correct.  As I said above, IF you determine the expenses can't be deducted, the depreciation WON'T reduce Basis.

[Mikel5]

So you would manually add this amount back to the basis? I appreciate your clarification. I'll continue checking but there may not be a definitive answer.

[Accountant-Man]

Carryover vacation home expenses,  like utilities and depreciation, can only be deducted against rental income. Disposition doesn't help.

I too make an adjustment to add back the depreciation lost under vacation home rules. My rule is that since it is not ALLOWED, IT DOESN'T REDUCE BASIS.

[TaxGuyBill]

Here is a discussion about the matter to review.  The part about whether or not expenses are allowable when the property is sold start at Post #18:

https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=6838

[Mikel5]

Thank you! That seems to be the best answer. Should help make my client happier as well.

[Mikel5]

Thanks for directing me there. Looks like the best answer is adding the carryover depreciation back to the basis. Still not certain that's right but it's certainly something I can defend.

[larry11]

it appears that the depreciation carryover amount offers no relief.

for determining recapture or depreciation, the depreciation worksheet and disposition schedule reports depreciation allowed or allowable. therefore even if you got no benefit of the depreciation in the years the property generated vacation loss and NOT PASSIVE LOSSES, due to too many personal days,

you can't get any benefit. Basically you pay the tax on the recapture even though you got no prior benefit.

the only way to get out of this is to change the use of the property from rental to  solely personal so it is out of service then no future depreciation is claimed as it would not be allowable. Planning would not to use it greater than 10% of days rented so the PAL rules would apply and get benefit of PALs on disposition.