This note generates when there is an ownership percentage entered for Schedule E, Supplemental Income and Loss. It warns preparers to review data entry on screen 4562. The business use percentage on the 4562 is not the same as ownership percentage on the Schedule E. If you want to allocate 50% of the ownership to each individual, you will need to pro-rate (or divide) the depreciation and the sale of the asset between the two owners. Then enter only the portion owned by this taxpayer on the 4562 screen. If the asset has been sold, the IF SOLD section should be completed showing the sale of the asset. If the preparer uses the Business % use field on the 4562 screen in an attempt to allocate the ownership percentage, it will cause the program to think that the asset was partially used for personal rather than business use and take the personal portion of the sale to Form 8949 and Schedule D (unless the check box Do not carry personal portion to 8949 is marked). The ownership percentage is dealt with by pro-rating the amounts and manually entering them on the 4562 screen for each individual involved.

For example, a building originally cost $200,000 and each owner has a 50% interest. Each owner would be allocated $100,000 of the cost. On the taxpayer's 4562 for this asset, the Cost / Basis would be entered as $100,000 with nothing entered in the Business % use box since all of the building that the taxpayer owned was used for the business, even though they only owned half of the building. This allows the taxpayer to take depreciation on their portion of the asset without indicating that any part of the building was used for personal use. When sold, if the sale price is $400,000, each owner would be allocated $200,000 of the sale price. In the If sold section of the individual 4562, a Sales Price of $200,000 would be entered so that only the amount related to that taxpayer is recorded and reported on the return. (If there are odd amounts involved, there may be rounding issues.)

If there were income and expenses from the rental of an asset recorded on the 4562 screen, those are entered on the E screen. Make sure to choose E in the FOR box and enter a MFC at the top of each 4562 that relates to the rental property. On the Schedule E screen, on the Property Info / Income tab, the preparer would type the Ownership percent (such as 50 for 50%).

The total rental income is entered on line 3. The preparer may use the Expenses 5-19 tab to enter the total expenses, such as advertising, repairs, taxes, utilities, etc. The software will prorate the income and expenses based on the ownership percentage entered so manual calculations are not required.