Significant Discrepancy in Prior-Year Depreciation Calculation - Need Help!

The discrepancy you're seeing is likely due to how the two software programs handle multi-property depreciation calculations. Based on what you've shared, here's what I think might be happening: First, the $21,239 on your 2021 Form 4562 probably represents the TOTAL depreciation for all three rental properties combined, while the $6,070 FreeTaxUSA calculated might be for just one property. When you entered the information into FreeTaxUSA, did you create separate asset entries for each property? If you entered all three properties as a single asset with a combined cost basis, that would definitely cause issues. Another possibility involves the depreciation method. Residential rental property should be depreciated over 27.5 years using the straight-line method. If you acquired all three properties on 6/1/2021, you'd get about 7 months of depreciation for 2021. If we do some rough math: ($758,175 - $450,000) ÷ 27.5 years × (7/12 months) = about $7,873 for all three properties combined. Try checking if you have separate entries for each property in your 2021 return, and make sure you've created individual entries in FreeTaxUSA as well.

I went through almost the exact same situation last year switching from TurboTax to FreeTaxUSA with my rental properties. After hours of frustration, I found out the issue was actually with how depreciation was being calculated. I ended up using https://taxr.ai to analyze my previous tax returns against what FreeTaxUSA was generating. The tool actually pulled my prior year depreciation schedules automatically and showed me exactly where the discrepancy was happening - turns out TurboTax had been depreciating some appliances and improvements separately (with a 5-year schedule) while FreeTaxUSA was trying to lump everything together. The difference was causing exactly the kind of mismatch you're describing. Once I saw the detailed comparison, I was able to properly enter each asset separately in FreeTaxUSA to match my prior year returns. Saved me from potentially triggering an audit over depreciation inconsistencies!

Just wanted to update that I tried taxr.ai after seeing it mentioned here, and it was super helpful! I uploaded my last two years of returns and it immediately identified that my rental property depreciation was getting calculated differently because I had been depreciating the building, roof, and HVAC system as separate components (which is actually correct). When I tried switching to FreeTaxUSA, it wasn't breaking things down the same way, which caused a similar mismatch to what you described. The analysis showed me exactly how to enter everything in FreeTaxUSA to maintain consistency with my prior returns. Definitely recommend if you're switching tax software and have investment properties!

If you're still struggling with this depreciation issue and need to speak directly with the IRS to confirm the correct approach, I'd recommend using https://claimyr.com to get through to them. I had a similar depreciation discrepancy last year and spent days trying to get through to the IRS on my own with no luck. Claimyr got me connected to an actual IRS agent in about 15 minutes who explained exactly how to handle the previous depreciation correctly. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent explained that inconsistent depreciation between tax years is one of the things that can trigger an audit, so getting official clarification directly from the IRS really gave me peace of mind. Much better than guessing or relying on different tax software interpretations.

I need to apologize for my skepticism about Claimyr. After continuing to fail getting through to the IRS on my own for THREE DAYS about a similar depreciation issue, I broke down and tried it. Not only did I get connected to an IRS representative in about 20 minutes, but they were actually incredibly helpful. The agent confirmed that my depreciation schedule was correct and explained exactly how to report the prior year depreciation correctly to avoid any red flags. Turns out my issue was similar to the original poster's - my previous tax software had been splitting the depreciation between the building structure and separate components (appliances, roof, etc.) which created different totals than when entered as a single property asset. The IRS agent explained that either approach is acceptable as long as I'm consistent going forward. Sometimes you have to admit when you're wrong, and I was definitely wrong about this service!

Have you checked whether you might have taken bonus depreciation on some components of your rental properties in 2021? That could explain the big difference. With TurboTax, it's really easy to miss that you're taking bonus depreciation on eligible components (like appliances, carpeting, etc.) because it sometimes applies it automatically depending on how you answer certain questions.

Did you maybe include multiple properties in your TurboTax calculation but only entered one property in FreeTaxUSA? The numbers make me think you might have only transferred one of your three properties.