making 168(k)(7) election to opt out of not taking bonus depreciation on schedule E rental property

Forum|Forum|5 years ago
May 13, 2021
2 replies
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When deciding not to take 1st year bonus depreciation for 7 year property improvements for a rental property recorded on Sch E on a 1040 does the election have to be made on screen 46 in Lacerte or can you opt out of taking the bonus depreciation on screen 22 by checking the elect out of SDA and not make the election? It shows up as an informational diagnostic which means you can efile without making it but will this cause an issue with the IRS meaning will it automatically send a letter to the taxpayer for more information?

Does opting out prevent the taxpayer from bonus depreciation for this property for all asset classes even though its expires in 2025, if not sooner? or is the election only for that property class for that year?

The taxpayer has existing passive loss limitations so bonus depreciation in 2020 gives no tax benefit.

Lacerte Tax

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Best answer by PKCPAMST

Go to Screen- 46 to make the affirmative election.

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TaxGuyBill

Level 15

Opting out only applies for this one year. Bonus is used again in all future years unless they opt out again (each year).

For your comment about not the depreciation not being able to be used due to passive loss limitations, that doesn't necessarily mean you should opt out because it using Bonus will just add to the passive loss carryover and it EVENTUALLY will be used.

As for how to do it in Lacerte, sorry, I can't help you there, I'm a ProSeries user. But your comment "checking the elect out of SDA and not make the election" doesn't really make sense to me. What do you mean by "not make the election"? In order to "opt out" of Bonus, you NEED to make an election.

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gn86_2Author

Level 4

Going forward the passive loss limitation is capped with a MAGI above 150k which they will be so it does them no tax benefit to take full bonus depreciation this year and the state does not follow federal so its best to not take it for improvements made in 2020.

In Lacerte when entering in the asset there is a box to check to not calculate bonus or SDA depreciation. By checking the box on screen 22 the asset input screen you change the calc to the entire useful life not the full year first year depreciation in 2020. However it does not add in the election to the tax return, it has an informational diagnostic stating you did not make the election but it does not prevent an efiling of the return. So my question is is the election required to opt out of bonus depr if its not there will it bring any IRS questions or any unwanted correspondence or do we have to make the official election and make it part of the return?

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PKCPAMSTAnswer

Level 6

Go to Screen- 46 to make the affirmative election.

M

Michael Duran

Level 3

The election is showing up on a 2022 individual return and I can't get rid of it. It's applying to all eligble property and i don't want to make the election.