Rental depreciation is not excluded from tax calculation

Forum|Forum|11 months ago
April 11, 2025
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I am using TurboTax Home and Business 2024. I compared Federal Tax Due before and after I input the info of a rental property. I found that the tax due = (net income of the property + depreciation) * tax rate. How could it happen? The total tax due should be net income * tax rate, right? I double checked the depreciation data. Looks like there was nothing wrong when I input data from the previous year.

Can you please shed some light on what's going on here? Thanks very much!

TurboTax Home & Biz Windows

Best answer by pk12_2

@AllenZ1 , I don't know if you can actually simplify in general this way. Generally,

Your Schedule-E income consists of -- gross rent LESS Expenses ( which is allowable Expenses + allowable Depreciation for the year). This income can be positive or negative and up to Passive activity limit. This is then transferred to form 1040 as business income. And along with your other incomes become your AGI. AGI less deductions become your taxable income. Thus depreciation for the year is an expense reducing your ordinary income. Therefore when you dispose off the property, any gain ( note that accumulated depreciation also reduces your basis and thus increases gain ) up to accumulated depreciation is treated as ordinary gain ( known as recapture ).

Does that kind of help in resolving this issue for you ?