Reporting Depreciation for Property Placed in Service Before 2011

[teshub]

My question is about where to report continued depreciation of rental property placed in service in 2010. Last year, I reported this property on form 4562. I made two separate improvements on this property in 2011, which I will report on form 4562 again. But 4562 doesn't have any line for depreciation of previous property. Do I calculate the depreciation on my own notes and report it on Schedule E (after adding the depreciation of the two capital improvements placed in service in 2011)? Or is there another place I can report it?

I'm trying to do things on my own and want to make sure I don't write things in the wrong places. Any info will be greatly appreciated! Thanks.

[SChinFChin]

My question is about where to report continued depreciation of rental property placed in service in 2010. Last year, I reported this property on form 4562. I made two separate improvements on this property in 2011, which I will report on form 4562 again. But 4562 doesn't have any line for depreciation of previous property. Do I calculate the depreciation on my own notes and report it on Schedule E (after adding the depreciation of the two capital improvements placed in service in 2011)? Or is there another place I can report it?

I'm trying to do things on my own and want to make sure I don't write things in the wrong places. Any info will be greatly appreciated! Thanks.

When I was doing it myself, I use a spreadsheet to calculate them, so it's separated into 5 year, 7 year, 10 assets, and under each category, the individual assets themselves, such as cabinets, hot water tanks, ranges, refigerators etc. And then the building, improvements etc. Then the categories are aggregated, and goes onto the 4562. Then, there's a sheet for each property.

Things have gotten busy, so for the past dozen years I have my CPA doing it, and he uses some CPA accounting software for accountants, and each return has a section in the back, called "Notes to 2011 Taxes" as an example for last year, and would have a section in it for depreciation, and this has all of the individual assets that I used to do on spreadsheets. Before I took some profits from selling some rentals a few years back, there hundreds of these little individual asset accounts, going back in some cases 20 or more years, some fully depreciated, and no, they don't all fit onto the 4562.

BTW, it's a good idea to keep your own spreadsheet on assets, particularly the year placed into service, and the cost basis. I tried a new CPA, and the guy doing the taxes (a young kid was assigned to it) used the current year as the year placed in service for everything, and the whole return came out wrong. I went back yelling at him, saying he should've copy off the "note to year xxxx" of the prior return, so he says to me, "give me a list of all your assets". Turned out I maintained my own spreadsheet, updated continuously, otherwise I have to go through all my file folders to figure it out, and it would've taken me weeks, if not months, particularly if you owned places for 15 to 20 years each.

Good luck on doing rentals.

[Bubba Jimmy]

Form 4562 is only required if you are placing new assets into service during the tax year, if you are taking a Section 179 deduction, or if you have "listed property" you are depreciating. Otherwise, you establish the class life, depreciation method, and convention used on the Form 4562 in the year you place it in service and then in subsequent years you just calculate the depreciation deduction on the relevant form, such as Schedule E in your case. Once you tell the IRS it is 27.5 year property, placed it in service in June, and are using the mid-month convention, that will not change so they know how you will calculate it in future years.

If you do end up placing more depreciable assets in service in subsequent years, you will once again have to file a form 4562. In that case, there will be a line on that form to list the total amount of MACRS depreciation you are deducting for assets placed in service in prior years. This is so you can add that to the current year's depreciation for new items and then carry the total depreciation deduction to the relevant form.

The IRS publishes a depreciation worksheet that can be very helpful in keeping track of your depreciable assets It is in the instructions to form 4562 which you can find on page 22 here: http://www.irs.gov/pub/irs-pdf/i4562.pdf

[SChinFChin]

Form 4562 is only required if you are placing new assets into service during the tax year, if you are taking a Section 179 deduction, or if you have "listed property" you are depreciating. Otherwise, you establish the class life, depreciation method, and convention used on the Form 4562 in the year you place it in service and then in subsequent years you just calculate the depreciation deduction on the relevant form, such as Schedule E in your case. Once you tell the IRS it is 27.5 year property, placed it in service in June, and are using the mid-month convention, that will not change so they know how you will calculate it in future years.

If you do end up placing more depreciable assets in service in subsequent years, you will once again have to file a form 4562. In that case, there will be a line on that form to list the total amount of MACRS depreciation you are deducting for assets placed in service in prior years. This is so you can add that to the current year's depreciation for new items and then carry the total depreciation deduction to the relevant form.

The IRS publishes a depreciation worksheet that can be very helpful in keeping track of your depreciable assets It is in the instructions to form 4562 which you can find on page 22 here: http://www.irs.gov/pub/irs-pdf/i4562.pdf

When I was looking at this post this morning, there's another thread right below this where that guy has not placed his asset into service, still working on it, and I think your answer pertains to that one, and it is absolutely correct, as always. See:

http://www.expertlaw.com/forums/showthread.php?t=139681

OP on this thread however had things done in 2010, then additional items done again in the year 2011, and wanted to know where to put it on the form, as he's submitted one the prior year, so his rental is already in service, and 4562's already filed in 2010.

It was a bit confusing for me this morning at first as well trying to get the two thread straight. Looks like you're talking to the other guy who hadn't rented out his place yet, and still working on it. That fella doesn't need a form 4562 for year 2011, but if he rents it out this year, he'll need one for year 2012, and all of the above you stated applies for this year.

[Bubba Jimmy]

The specific answer to the OP question (perhaps I was a bit too pedantic in giving a more full explanation) is that line 17 of form 4562 is where you put the MACRS depreciation deduction for items placed in service in prior years. Just calculate it on your worksheet and plop it on line 17. Mechanically follow the instructions on the rest of the lines and all will be well.

[teshub]

Thanks to all answers. I had in fact figured out what Bubba Jimmy wrote in the first post, but I should confess that it's probably because during my free 2nd Look Review offered by a tax company, I had figured where to put the number I came up with. I had all the numbers right, I just didn't know where to put them. I will make sure not to leave this to last minute next time so that I won't panic about it on the day of submitting the taxes.