Step 1: Open Schedule E
In TaxWise, open the client’s tax return.
Go to "Forms" and select Schedule E (Supplemental Income and Loss).
Enter the rental property address, type of property (e.g., Single-family, Multi-family), and rental income/expenses.
Step 2: Open Form 4562 (Depreciation and Amortization)
Locate Form 4562 in the "Forms" menu.
Select “Create New Asset” to add a depreciable asset.
Step 3: Enter Asset Information
In Form 4562, enter the following details:
Property Details:
Description: (e.g., "Rental Home")
Date Placed in Service: (First day the property was available for rent)
Cost Basis: Purchase price + major improvements (excluding land).
Land Value: Enter the portion of the purchase price that applies to land (Land is not depreciable).
Business Use Percentage: Usually 100%, unless part of the home is personal use.
Depreciation Method:
Select MACRS (Modified Accelerated Cost Recovery System).
Select GDS (General Depreciation System).
Recovery Period: 27.5 years for residential rental property.
Depreciation Method: Straight-line (SL).
Convention: Mid-month (MM).
Step 4: Review Depreciation Calculation
TaxWise will calculate the annual depreciation expense using:
Cost Basis÷27.5=Annual Depreciation\text{Cost Basis} \div 27.5 = \text{Annual Depreciation}Cost Basis÷27.5=Annual Depreciation
This amount will automatically flow to Schedule E, Line 18 (Depreciation Expense)
Step 5: Save & Finalize
Review all depreciation entries for accuracy.
Ensure the depreciation flows correctly to Schedule E.
Save and e-file or print the return.
Additional Notes:
Improvements (e.g., roof replacement, HVAC upgrades) must be added as separate assets and depreciated over their respective recovery periods (usually 27.5 years for structural improvements, 5 or 7 years for appliances/furniture).
If the taxpayer stops renting the property, depreciation stops as of the date of change.
Land is NOT depreciable—make sure to allocate a portion of the purchase price to land.