PA tax question

[Margaret CPA in OH]

New client, referral, contacted me last week to file her MFS 2021 returns, IRS and PA and Philadelphia.  2020 was filed by now ex-spouses Deloitte firm and I have copies.  He lives in Hong Kong so address is Hong Kong but she lived then and does now live in Philadelphia.

I matched the 1040 save for $1 but the PA 40 wants to deduct the $46,000+ loss on PA Sch D.  She had to cash in her 401(k).  In reading the instructions online from PA tax, it seems correct but the Deloitte firm didn't take it.  So what is correct?

Also,they jointly owned a condo in Philly and the depreciation schedule shows a

Building $516,000 50% use, Basis for Dep. $516,000 Beg Acc Dep $52,383, Currrent $18,764, Ending Dep $71, 147

Less Exclusion -$250,000 50% use Basis for Dep -$250,000 NO Beg Acc Dep, Current Yr -$9382, End Accum Dep -$9382

What is this exclusion thing?  The amount of depreciation on the return is just the amount shown for the building, $18,764.  Scratching my head here.  It was sold in 2022.

Lastly the return copy contains Form 8948 AND 8879 but client says that her ex said it was efiled without her review or signature.

He has also provided a detailed account of what she owes him as he paid all the tax due to IRS, PA and Philly as well as the penalties and interest.  He also paid $10,000 toward her IRS account which she verified after I told her to set up an online account which she promptly did. 

As she wants me to prepare her 2021 returns and confirm his amount of what she owes him.  I need the most help with that PA 40 and the loss ATX wants to deduct.  Oh, it also does not want to take the state taxable income which appears per the instructions and the 2020 return copy that it is Medicare wages.  I can't click on input the right things to get that figure on the form without overriding.

Thanks so much for any help.  I've got precious few days to get this out to her and submitted.

[jklcpa]

18 minutes ago, Margaret CPA in OH said:

As she wants me to prepare her 2021 returns and confirm his amount of what she owes him.  I need the most help with that PA 40 and the loss ATX wants to deduct.  Oh, it also does not want to take the state taxable income which appears per the instructions and the 2020 return copy that it is Medicare wages.  I can't click on input the right things to get that figure on the form without overriding.

The cap loss will "show" on the PA40 sch D, but it will not be included in the total because PA only allows gains, and only the gains total will carry to page 1 of the PA40.

PA uses a wage reconciliation schedule that has 3 columns. First one reconciles Fed wages down to Medicare wages, 2nd column is Fed wage to PA reconciliation, and third is Medicare to PA wage reconciliation. It's the "PAW2RWK".  I can't say about ATX, but if it's simple items like 401Ks or GTL the software may complete the form properly, but there are times when manual entries are needed if there are items of compensation taxable for PA that don't affect Medicare wages and are memo-type items on (or not on) the W-2.

Sorry, without looking at instructions myself, can't help with the Phila depreciation question or exclusion.  

[Margaret CPA in OH]

Thanks for the reply, Judy.  I guess I have to call tech support.  The loss is carrying from PA40 Sch D to page 1 of PA40 and deducts it on line 5.  Sch D is clearly marked loss, x in the box.  I saw the reconciliation page for Line 1a but only column Income from Federal is correct.  PA Resident does not pick up either the Medicare wages or state wages data entry box on the W-2 or when I enter into another ATX worksheet that allows typed entry for Taxable PA Resident compensation.  It does show Box 1 and Box 5 wages, different amounts but the workspace above is not picking up the correct figure so I get a message that the taxable compensation amounts below do not equal line 4 above.  No kidding!  But why?  So off to support I go.

The depreciation issue is a statement with the 1040, not on Philadelphia.  The condo is in Philly but I wasn't clear that the depreciation weirdness is the schedule with the IRS 1040.  I just have no clue what, if anything, to do with that.  Sch. E just took the Building amount.

Thanks again.  Time to call support and wait.... At least I know the loss should not be showing and the wages should be Medicare, not box 1.  The Deloitte return does not have the worksheet you mention, just a statement.  ATX has a worksheet that doesn't work.  Sigh...

[jklcpa]

Is the loss actually being deducted to arrive at the PA taxable income though?  The loss does show but it's like a memo-only item.

ETA - sorry I said loss doesn't carry from sch D to the front of PA40.  Page 1 of PA40 will show the loss, but it should not be used in reducing income to arrive at PA taxable income.

BTW - I really dislike PA's returns and tax system.  lol

[jklcpa]

I have to tell Drake to use the wage rec worksheet, and sometimes I have to enter numbers manually.  I've had several where PA wages were different that Medicare wages, and I've had to have pay stubs to figure out why and what else to enter. In my clients' cases, it was some sort of deferred exec comp program with AstraZeneca, and I'm not going to argue with a large company that I might disagree with reporting without knowing all the details of the comp program.

 

[Margaret CPA in OH]

Thanks again, Judy.  You are correct, the loss is not taken into account for adjusted PA taxable income.  I confess I didn't get that far as I was so flummoxed seeing it appear on line 5 when it did not on the Deloitte return.  I guess I will carry on and maybe everything else will work with overrides as needed.

[jklcpa]

1 hour ago, Margaret CPA in OH said:

Also,they jointly owned a condo in Philly and the depreciation schedule shows a

Building $516,000 50% use, Basis for Dep. $516,000 Beg Acc Dep $52,383, Currrent $18,764, Ending Dep $71, 147

Less Exclusion -$250,000 50% use Basis for Dep -$250,000 NO Beg Acc Dep, Current Yr -$9382, End Accum Dep -$9382

Margaret, the $18,764 of depreciation would be the amount of SL deprec over 27.5 years on the full depreciable basis of $516K, and then it seems that the amount is reduced by the 50% of non-use as a subtraction of the $9382.

I'm just guessing, but I wonder if the $250K was the amount of "non-use" in prior years and the preparer forced that reduction of exactly 1/2 of the depreciation expense?  Or possibly because there was $16K of "land" at some earlier point in time that doesn't exactly show up on the detail schedules and that disappeared when Deloitte prepared this (because the deprec exp IS based on the full $516K that is weird)???  Was Deloitte the preparer for all the prior years, or just last year?

Again, just a WAG.

[Margaret CPA in OH]

Again my thanks, Judy.  I am, I hope after 35+ years, pretty much aware of depreciation calcs and this one, $18,764, was within a couple of dollars of mine using a table and the ATX calc.  Non-depreciable land was listed as $129,000 with an exclusion of -$64,500 but no depreciation of course. I didn't think it was needed in my post.  I just have no clue what, if anything, to do with the exclusion thing and the negative figure which did not appear on the Deloitte return - only the expected amount did.

I just looked at 2019, forgot she sent it.  Deloitte did prepare and MFJ.  There is no 'exclusion' of anything there so it must be some cute way to indicate his and hers although 2019 shows 100% business use and 2020 is 50% so took care of that as MFS.  Scratching head, will stop worrying.  Client guessed something about the exclusion of primary residence when qualifying time met but that doesn't, to me, explain the 50% for the land.

She may or may not return as a client for 2022.  The divorce was final in 2022 and the condo sold in 2022.  Perhaps all will be revealed in the future, just maybe not to me.

Thanks again for the PA help.  I shall carry on and hope for the best with the Philly returns!

[jklcpa]

Margaret, I wasn't implying that you couldn't calc the deprec. Really, I was talking my way through it and and sharing that in writing in what it could all mean. I'm sorry if you took it any other way.

[Margaret CPA in OH]

No worries. I still have no clue about the 'exclusion' thing so clearly don't know it all.  I was just pretty happy that I got the same figure for the building but have no idea what to do, if anything, about the 'depreciation' on an 'exclusion' that shows up only on the depreciation schedule.  Maybe she will go somewhere else for 2022 then a not my problem!