Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken.
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If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year.
In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules.
I do note that the IRS worksheet (5-1 pub 527) has the carryover broken out between operating expenses carried over and depreciation carried over. So there must be a reason.
dave829 wrote:I’m confused. [...]and that 280A applies, then 280(c)(5) limits the allocable rental deductions to income. Any depreciation that’s included in the allowed rental deductions is considered “allowable” under 1016. Any depreciation that exceeds the limit is not, and under 280(c)(5), it doesn’t carry over to the next year.
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