Discussion:Arizona Depreciation -- Form AZ141

Complex resident Arizona trust owns residential real estate. All accounting income and some corpus was distributed to the beneficiaries (1 Arizona resident, 1 nonresident), leaving negative taxable income on the federal 1041 (after the trust exemption). Depreciation was therefore 100% allocated to beneficiaries (none flowed through the DNI on federal 1041).

However, on the Arizona side ProSeries adjusting for differences in Federal and Arizona tax law by adding back the federal depreciation on Line B3 of Form 141AZ, and subtracting Arizona depreciation (in this case the same as federal depreciation) on Line B8. This seems incorrect since the depreciation was never part of the federal taxable income in the first place. So if there's an adjustment to be made I think the benes need to make it on their own Arizona 140's.

I have used ProSeries on-line chat, but they were unable to give me an answer. Ditto for the tech support line, at least not yet. I can obviously override, but I hate to do it since this situation does not seem at all unusual.

Does anyone have any insight?

I spoke with ProSeries tech support this morning and they believe I am correct, and will be working through channels, including verifying with state of Arizona, to make certain before modifying the program.

I also spoke with AZ Dept of Revenue a few moments ago; they concurred as well.