I've entered my rent properties with all the expenses and worked through the depreciation screens. My depreciation didn't match what TT through it should be because I had a DumbA CPA do my taxes last year and he mixed up the costs of my houses when he completed the forms! So I put in what was claimed on the Amended 1041. TT calculated the depreciation and created a worksheet for it. But when I look at Schedule E every field for depreciation for the homes says 0. What did I do wrong? I've done the whole return twice to make sure I didn't miss something. Both times, the fields do not populate. Please help!
May 19, 2021 11:20 AM last updated May 19, 2021 11:20 AM Connect with an expert
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1 Best answerYou will enter the income and depreciation on your K-1 into your individual income tax return.
The default rule for trusts is that the depreciation deduction is apportioned between the trust and the beneficiary(ies) according to the amount of rental income received by each.
May 19, 2021 12:20 PM 14 RepliesAre you preparing an amended 1041 for the 2020 tax year?
Regardless, if you made a distribution of the rental income, then the depreciation deduction will generally follow that income on the K-1(s).
Enter Forms Mode and check your K-1(s), in particular Line 9 (with an "A" code).
May 19, 2021 11:38 AMNo, the amended return for 2019 was filed last year by a different CPA. I've found errors with what he did as well. The whole mess is a disaster. I should have been doing them myself from the get go.
I checked Schedule K-1, Line 9 and the depreciation is reported there and correctly.
My question is now - if it were reported on Schedule E as it should be, that would change my expenses and make my income less than is showing. Won't that affect the loss I can carryforward?
May 19, 2021 12:03 PMYou will enter the income and depreciation on your K-1 into your individual income tax return.
The default rule for trusts is that the depreciation deduction is apportioned between the trust and the beneficiary(ies) according to the amount of rental income received by each.
May 19, 2021 12:20 PMHummmm. none of the 3 CPA's I've had do this Trust Return has done it that way. Depreciation was always reported on Schedule E and rolled into my loss.
Turbo Tax allocated the entire depreciation amount to me and none to the Trust as far as I can see. I could be reading the info incorrectly however.
I'm going to roll with it this way and see how it affects my bottom line on my personal return. Thanks so much for the clarification.
May 19, 2021 12:50 PMI myself quite honestly can't help much with this since a 1041 is involved. But I think it would help others more knowledgeable on this than me, if you explained the trust. I say this because my first impression was that the 1041 was for a final estate, thus giving the impression you inherited the property. But you do state it's for a trust. Knowing more about the trust may help others to assist you here. For example, is this a trust that you put the property in? Or was this trust created by another who owned it, and has since passed away leaving the trust to you?
When it comes to depreciation, these fine details really matter and can make a huge difference in what the "correct" response to your query may be.
I say all the above because I find it inconceivable that 3 CPAs would do things wrong, and all 3 of them do it wrong the same way. Though inconceivable, one can't rule it out as a possibility either.
May 19, 2021 5:39 PM@Kismetique wrote:Turbo Tax allocated the entire depreciation amount to me and none to the Trust as far as I can see. I could be reading the info incorrectly however.
The default for TurboTax Business is to allocate depreciation in accordance with the allocation of rental income.
For example, if the trustee makes a distribution of 100% of the rental income to a beneficiary, TurboTax will allocate 100% of the depreciation deduction to that beneficiary. If half of the rental income is distributed to a beneficiary, then half of the depreciation will be distributed to that beneficiary.
Again, the default position is that the depreciation deduction follows income allocated to the beneficiary or trust. If your CPAs allocated all of the rental income to the trust then they properly allocated the entire depreciation deduction to the trust.
May 19, 2021 6:03 PM@Carl wrote:. I think it would help others more knowledgeable on this than me, if you explained the trust.
The only explanation, for the purposes of addressing the question of allocating depreciation, that is needed is whether or not this is a grantor trust, which clearly does not appear to be the case.
May 19, 2021 6:08 PMThanks @tagteam Just wanted to state what was not obvious to me, as I wasn't confident if it was obvious to others that are more knowledgeable on trusts, than I am. Long term residential rental property may be my forte'. But not so much when it's in a trust.
May 19, 2021 6:22 PMThis is a return for a VA Irrevocable Trust with an EIN. I'm an only child, my mother is still living, but has been placed into an assisted living facility (which complicates matters further). All her property and investments were placed in this Trust in order to allow her to receive VA benefits (deceased father was military) and protect assists. There were 3 houses, 1 she lived in and 2 rentals. The complicated issue arises from placing her in assisted living. The Trust states that she can live in 1 home and that home realize rent income, nor can the home be sold. My daughter (her grand-daughter) was living in another house and paying fair market value rent. When my mother was no longer living in her home, my attorney said I could change the homesteaded home to my daughter's house which could no longer charge rent, and I could then rent out my mothers house, rather than it sitting empty until her death.
So for 2018 House A & B were rented and C had no rent and no expenses.
For 2019 House A & C were rented and B had no rent and no expenses.
In the meantime, my husband and I purchased more rental houses, on the same street, and while we keep them all separated with Trusts, we placed ALL the houses into LLC's for an added layer of protection. We just had too much exposure not to do something! So now my mom's irrevocable trust owns the LLC which owns the 3 houses.
All 3 CPA's filed differently. The VA Trust is in essence a Caregiver Trust. My mother pays me her entire income every month to take care of her and pay her expenses. Before she went into AL, I was paying gobs of taxes on the money that I wasn't spending on anything but taking in as income and was to be reported on Schedule C. The CPA didn't want to do it that way, and so she didn't - even with my attorney who wrote the Trust telling her to file this way! This year has reversed itself and I'm coming out of pocket for her care and have a loss. Which is nice because it reduces my taxes.
The second CPA was just sloppy. The townhouses are all on the same street, so they are quite easily confused. The identifiers are 108B, 108D, 109B, 109D - but not all in the same Trust or owned by the same LLC. I understand and can sympathize with the confusion, but they HAVE to be kept straight. He would pull different amounts each year for the cost of the houses - mixing them up. The VA Trust has to file it's own 1041, while my personal Trust without an EIN can pass through on my own income tax. It really is quite confusing and especially now that the Trusts own LLC's with their own EIN's.
The third CPA filed the Amended Return but, they both put the depreciation on Schedule E, rather than on the K-1. After reading more - it makes perfect sense to place the depreciation on K-1 rather than on Sch E. How in the world do 2 CPA's not know to do this?
Sorry for the long and confusing explanation. Hopefully this will help someone else. These VA Trusts are surprisingly not very common and especially confusing is how to handle the assets held in them.
