Category: Questions about Income
Rents and Royalties Schedule E % of Ownership and Depreciation
Percent of ownership designates your share of the amount of rental or royalty income you are reporting.
Steve has a 3% ownership stake in a property being drilled for oil. He receives a royalty check and statement for $150. He should input his percent of ownership as 100% and claim the $150 royalty. This is because 100% of his check belongs to him, his portion had been pre-determined.
Mr. and Mrs. Kim co-own a vacation property with another couple. The property generated a total yearly rental income of $20,000. Mr. and Mrs. Kim can show their % of ownership as 50% and input the full income received in the rental of the property of $20,000. This will give them rental income of $10,000 for tax purposes. Additionally all the expenses they input for the property should also be stated in full, as they will get a deduction against their income of ½ of all the expenses entered. 50% of all the expenses recorded on the return will be allocated to their portion of the income from the property.
When completing your Schedule E in the program, the TaxSlayer system will calculate the amount of your income and expense by taking your percent of ownership and multiplying it by the total amount of rental or royalty income and expense recorded.
When entering in your depreciation on your rental property you need to take only the portion of the asset that belongs to you. This is not allocated using your % of ownership.
Mr. and Mrs. Kim’s rental property has a cost value of $150,000 with a land value of $20,000. They will be depreciating their 50% ownership of this property beginning on the date it became available for rental. They will input in the depreciation section of the Sch E…. Asset – Rental Vacation Property… Cost = (50%($150,000 - $20,000)) or $65,000. The cost is stated as the fair market value at the time the asset became available for rental. They will depreciate that property using MACRS 27.5 years depreciation for the time they own the property.
Depreciation is the annual deduction you must take to recover the cost or other basis of business or investment property having a useful life substantially beyond the tax year.
*Land is not depreciable.
Please refer to the IRS publication 527 for answers to all your specific questions regarding residential and vacation rental property pub 527.
To access Schedule E within our program, please log into your account and select Federal Section > Income > Enter Myself > Rents and Royalties.