Depreciation recapture on rental property on which no depreciation was taken

Forum|Forum|5 years ago
February 2, 2021
2 replies
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I understand depreciation recapture and what the IRS says about it. What I need help with is making TT do it.

I used TT from the first year that I converted my house to a rental. I never entered the property as an asset, so no depreciation was ever reported.

I sold the property in 2020. How do I answer the question "Amount of Depreciation Taken in Prior Years"?

TT autofilled the box with what I'm assuming is the amount of depreciation I should have claimed. Since I claimed $0, should I change that to 0?

TurboTax Live Self Employed

ColeenD3

No. Leave it alone. Since you have to recapture the correct amount, the program has calculated that for you based on the lower of adjusted basis or FMV at the time of conversion and number of years rented.

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Mike9241

see a tax pro. you have to recapture and pay taxes on the depreciation you should have taken. the pro can help you with form 3115 which will allow you to claim on the 2020 return the depreciation you should have taken. the tax on the depreciation you have to recapture can be at a different rate than the taxes on the deduction you'll get by filing the 3115. do not ignore this. in the worst-case scenario the IRS will catch that no depreciation was taken and bill you. they probably will not help you modify the return to use form 3115 and if it's several years down the road you may lose the ability to ever claim a deduction for the depreciation you should have taken.

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PattiF

You do need to file Form 3115 to recapture the depreciation that wasn't claimed annually. Mike9241 is absolutely correct about this. This form is available in TurboTax, but it is the form only without calculations or guidance. Form 3115 is used to report a change in accounting method and is best prepared by a CPA or EA.

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