Depreciation setup for apartment building rental

[jklcpa]

For those of you having clients with rentals having many units, a client will be building an apartment building with 24 or 25 units in a future year, and my question is how best to set up the subcategories for the fixed asset schedule to make it most useful for future. Should I separate into land, main building and structural-related items, and then unit-by-unit for appliances and fixtures, etc that are sure to be replaced sooner than later, meaning 25 more subcategories all for this one rental activity, or some other way entirely?

I do have a separate fixed asset depreciation program outside of my tax software that allows for various methods of categorizing and sorting within the main unit such as by location/unit, asset categories, etc, and it will produce all of the tax forms too.  Drake's tax software isn't as versatile but does allow for direct entry on the 4562, so I wouldn't need to duplicate all of the work again within the tax program itself.

Maybe I'm overthinking this, which wouldn't be unusual. 

[BulldogTom]

If you have an outside depreciation schedule in detail, I think I would suggest keeping the tax return as consolidated as possible.   I would not list the F&F by unit on the tax return.   I would summarize my tax return by MACRS Class & Life, so any of your F&F that are 5 year would be 1 line item, 7 year 1 line item, etc.  Same with buildings if there are more than 1.   Just one line item summarizing all buildings.

Tom
Longview, TX

[Terry D EA]

A few years ago I had a client that had a multiple unit rental building. Trying to keep up with every little detail is a daunting task. The categories were kept at the building, land, lease hold improvements, appliances and so on. I too kept an outside depreciation schedule but for the tax return, I did lump the appliances that were replaced together as one entry leaving the detail in the outside depreciation schedule. Same with the income, one entry for the entire building. The client kept the detail on who paid and who didn't. 

[Medlin Software, Dennis]

For me, accounting may have many items I track, but for tax prep, I use as few categories as possible. My tax preparer does not see how I track income by type, they just see the total income (for example). Sub totals in accounting is the key. If my preparer does not feel something is correct, then it is corrected in accounting, until each is satisfied. This is true from the "olden times" when I did it all, to now, where I do the accounting, and hire out the tax prep.

I keep my depreciation figures, even I have to ask my tax preparer for assistance/confirmation. This way I can show depreciation proportionally every accounting cycle.

IOW, my tax preparer gets a very short set of reports from my accounting, refined over the years, showing the bare minimum number of line items so the reports make sense, and so the tax preparer has the figures they need. Of note, we have not had a depreciable item in many years, but the principle of realizing accounting needs are different from tax prep needs remains valid (to me).

[jklcpa]

Dennis, none of that is what I asked, and this is where your answer is from the POV of a business owner and differs from that of a tax preparer. The question has nothing to do with proper accounting or tracking of income either. I will be doing the write up work and keeping all depreciable items on the FA schedule for this very large project outside of the tax preparation software. I can handle all of that easily, and the number of line items on the return is irrelevant to me. I will provide as much detail as is needed for a proper return. I only mentioned that Drake allows overrides so that the readers here realize that the tax software won't require a duplication of effort entering all detail again within the tax software to generate a complete return.

The question has to do with the FA schedule maintained outside of the tax software, specifically for the fixed assets of an apartment building having many units, with an eye to the future for when items are removed and replaced and how best to set up that FA schedule now for expediency in future years. In my experience, it is always easier to start out with too much detail rather than schedules I've followed from other preparers over the years with not enough details that then causes struggles down the road, and my question was how to best to initially organize all of that on the FA schedule.

[BulldogTom]

Sorry @jklcpa, I got that backwards.   I thought you had it all set up in the outside software and were asking about the depreciation setup in the tax software.  

Assuming that your client is going to tell you by unit what appliances are replaced, which carpets are replaced by unit, etc. I would have Land and Buildings as my first level categories, then the units as sub-categories under each building (building A, unit 1).   Then all the components, F&F and improvements listed under each unit entered as the lowest level sub-categories in such a way that I could sort on MACRS Class and Life to get summary totals.   

Once you have it set up, it should be pretty easy to maintain.   

I envy you getting to set up the depreciation schedule.   I have had many instances where I had to go into a musty spreadsheet and try and figure out how that came out as something else on the tax return.

Tom
Longview, TX

[jklcpa]

Thank you, Tom. That was my general plan, but wasn't sure if it was overkill. Like I said, it's easier to have too much detail rather than have to dig it out or extrapolate later on.

[Patrick Michael]

I'm not sure what program you are using for tracking the depreciation.  Many years ago I used a program (I believe it was MAS 500 Fixed Asset Manager) and it had the capability to assign a department to an asset that could then be used to generate reports based on the department.  So instead of setting up separate categories, we used the department field to assign the assets to the specific units.  

[jklcpa]

56 minutes ago, Patrick Michael said:

I'm not sure what program you are using for tracking the depreciation. 

It's from Thomson Reuters, originally called Creative Solutions DS II, now the Fixed Assets module that integrates with Ultra Tax.