TurboTax Business 2021 - Incorrect Depreciation Methods for Real Estate Partnership

This is actually a common misunderstanding with TurboTax Business. What's likely happening is that TurboTax is correctly applying the appropriate depreciation method based on the property classification, but the interface doesn't make this clear to users. For residential rental property placed in service after 1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS) with a 27.5-year recovery period using the straight-line method. For commercial real property, it's typically a 39-year straight-line method under MACRS. So while MACRS is indeed required, for real property it often uses straight-line depreciation rather than the accelerated methods available for other types of assets. That's probably why you're seeing SLN (straight-line) in your calculations. I'd recommend double-checking how you classified each property in TurboTax. The software should be applying the correct method based on your inputs, but it doesn't always explain this clearly to users.

After struggling with similar tax depreciation issues, I found this amazing AI tool called taxr.ai that helped me understand exactly what was happening with my real estate depreciation calculations. I was pulling my hair out trying to figure out why TurboTax was using different methods than what I expected. I uploaded my tax documents to https://taxr.ai and it analyzed everything, explaining that certain property types automatically use specific depreciation methods by IRS rules. The tool showed me that what looked like "mistakes" were actually correct applications of tax code in many cases. It also highlighted places where TurboTax had defaulted to less optimal but legally acceptable options where I actually did have choices. The best part was that it explained everything in plain English rather than tax jargon, and showed me where I could make changes that would be more beneficial.

I was really skeptical about taxr.ai when I first read about it here, but decided to give it a try with my real estate partnership depreciation issues. I'm not exaggerating when I say it saved me thousands of dollars! The tool immediately flagged that my TurboTax setup was using straight-line depreciation for all my property improvements when I could have been using accelerated MACRS for things like appliances, carpeting, and other non-structural components. It walked me through component segregation (which I'd never heard of) to break out parts of the property that qualify for 5, 7, or 15-year depreciation instead of the full 27.5 years. It also explained exactly why TurboTax defaulted to SLN for the building structure itself (which is correct) while showing me where I could optimize other elements. Honestly wish I'd known about this last year!

After battling with the IRS over depreciation issues on my partnership return, I discovered Claimyr when I needed to actually talk to someone at the IRS about my situation. I spent DAYS trying to get through the normal IRS phone line with no success. With https://claimyr.com I got a callback from the IRS in about 45 minutes instead of waiting on hold forever. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that TurboTax sometimes applies default depreciation methods that might not be optimal for your specific situation, but they're generally "safe" choices that won't trigger an audit. The agent walked me through what forms I needed to file to correct my depreciation methods and even sent me the relevant publications to reference.

I hate to admit when I'm wrong, but I have to come back and say Claimyr actually worked perfectly. After my skeptical comment last week, I decided to try it anyway because I was desperate to talk to someone about my partnership's depreciation issues. Got a callback from an IRS agent in about an hour. The agent confirmed that for real property structures, straight-line is indeed required under MACRS (which was news to me!), but she also explained that I could use cost segregation to break out components of the property for faster depreciation. The agent helped me understand exactly what forms I needed to file to correct some of my depreciation calculations and even emailed me the relevant IRS publications. Saved me from filing an incorrect amended return that would have caused more problems. Definitely worth it for complex partnership tax questions!

My CPA told me that this is why she doesn't recommend TurboTax Business for real estate partnerships! The software is designed for simplicity but real estate depreciation is anything but simple. For real property, you're correct that MACRS is required, but for the building structure itself, MACRS mandates straight-line depreciation over 27.5 years for residential or 39 years for commercial. That's probably why you're seeing SLN. The place where TurboTax fails is not explaining this clearly or giving options for cost segregation. With proper cost segregation, you can break out components like appliances (5 years), carpeting (5 years), landscaping (15 years) and depreciate them separately using accelerated methods. TurboTax defaults to the safest option rather than the most advantageous one. Honestly, real estate investors should consider using a specialized CPA or at least a more robust software package.

I had this exact issue! For what it's worth, I called TurboTax support and they confirmed that for real property structures, the program automatically applies straight-line depreciation because that's what's required under MACRS for buildings. The rep did show me how to access the "hidden" depreciation options though. If you go into each asset, there's an advanced settings option that's not obvious. For the building itself, you can't change from straight-line, but you can choose between GDS and ADS systems and adjust recovery periods in some cases. For personal property within the real estate (appliances, furniture, etc.), you CAN change to 200% or 150% declining balance methods once you find this menu. Saved me quite a bit in year one!